Thompson Law Group, P.C.

Bankruptcy stays pending litigation against debtor company

In Pennsylvania and all jurisdictions, a company's filing for bankruptcy protection may facilitate the resolution of many different types of business disputes and claims. For example, in the recent filing by SunEdison Inc., a dispute pending in another court turned its focus to the Bankruptcy Court. Vivint Solar Inc. had sued SunEdison over SunEdison's alleged failure to live up to its obligations under a merger agreement. Vivint, which installs solar panels, announced that it would participate in the bankruptcy proceedings to protect its interests and maximize its recovery.

In the case, the pending litigation against Sun Edison was held up by SunEdison's bankruptcy filing. When a bankruptcy is filed, lawsuits against the debtor in other courts are stopped, at least temporarily, by the automatic stay that issues immediately upon filing. The focus on the case may at that point switch to the federal Bankruptcy Court for potential handling of the plaintiff's claims against the debtor.

It may be that whatever recovery the plaintiff can now obtain will be dictated in the Bankruptcy Court where the company's resources are reviewed to determine what claims may be partially or even completely paid. Some claims, on the other hand, may be totally discharged by the final bankruptcy order without a plaintiff or claimant company receiving any recovery at all. In that respect, the answer will be in the specific facts of each case.

Where a claim is secured by collateral, the plaintiff company may obtain a substantially better recovery. Generally, secured claims are protected in a bankruptcy, but in some instances, the terms and interest rates may be modified to the benefit of the debtor company. The complexities of a business bankruptcy in Pennsylvania, or any other state, can be explained to a business entity by an experienced commercial bankruptcy practitioner. There are many different factors that may determine the ultimate outcome of a creditor company's claims against the debtor company.

Source: Reuters, "Vivint Solar to take part in SunEdison's bankruptcy case", May 10, 2016

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