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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33801
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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Entertainment Publications filed Chapter 7 on March 12, 2013.

Resolved Question:

Entertainment Publications filed Chapter 7 on March 12, 2013. Some schools had signed contracts to sell their upcoming 2014 books.

When the news hit about the bankruptcy and loss of over 660 jobs, offices closed, many schools scurried to sign contracts with another coupon book company.

Now a month later, Entertainment is sending out an email to these schools stating that they are in process of being bought, will have 2014 books and ask that the schools honor their agreements.

Many schools do not want to sell their books and feel when the company opted to file Chapter 7 instead of putting the company up for sale, it made their existing contracts null and void.

If the company had gone through a normal purchase, without ever shutting down, there would be no problem.

But because they did NOT do this and filed Chapter 7, the schools feel they had the right to make alternative plans and want to honor the new contracts they signed.

Can Entertainment enforce these agreements under the circumstances?
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  dylatess replied 1 year ago.
Over 34 years, I have assisted my clients with debt problems having filed more than 32000 Chapter 7 and Chapter 13 Bankruptcy petitions.

If Entertainment filed a chapter 7 bankruptcy, that means that they told the world that they were going out of business. And any assets would be liquidated. Likewise, a bankruptcy trustee would have taken over the company for the purpose of selling the assets.

In the alternative, if the company filed Chapter 11, that meant that they were reorganizing their debts and staying in business.

As you have said, the company filed a chapter 7. So if you are sure it was a seven and not an 11, I would call the attorney for the company that represented them in the bankruptcy to verify that the company did not convert to a chapter 11 and therefore is no longer in business. If he says they are not in business, you do not have to sell their books and can go elsewhere.
Customer: replied 1 year ago.

Thank you. The trustee Charles Forman out of New Jersey has noted that the son of the original developers claims to have made a 11.3 million dollar bid to buy the company BEFORE it filed Chapter 7. The son has now contacted this trustee and the trustee has evidently accepted this 11.3 million as a starting bid to buy the company. The trustee states that the company has 10 to 50 million in assets and 50 to 100 million in debts. Appears that the son is trying to buy the company "cheap". If his 11.3 bid is accepted, how can the creditors get paid? Nothing has been said about converting to Chapter 11 to reorganize.


 


I talked to the attorney representing Entertainment today and she told me that all the school contracts were executory contracts that were part of the value of the company to be sold with the assets. She indicates that if the schools do not sell per the terms of the agreement, they could be sued for breach of contract.


 


I responded that due to the unusual case that they filed Chapter 7, the schools had the right and were due diligent in finding another source and signing contracts to sell the new companies coupon books.


 


It was a 7 and not an 11


http://couponsinthenews.com/2013/03/13/entertainment-coupon-book-bankruptcy-the-fallout/


 


http://couponsinthenews.com/2013/03/26/entertainment-coupon-book-back-from-the-dead/


 


.

Expert:  dylatess replied 1 year ago.
You have now added information that was not provided in your initial question. Likewise, I answered based on your original question. I will now opt out and let someone else have a go at it.
Customer: replied 1 year ago.


when will I get an answer? I was just responding to your question if I knew if it were chapter 11 or 7. It was 7 and I included links to show you. You still did not answer my original question, with the company being up for sale and a buyer, are the contracts with schools enforceable.


 


On the news today, a TV station said that Entertainment is honoring all business contracts signed before the bankruptcy. They may want to honor them but what if the schools made alternative plans and do not want to honor them? THat's the question I asked in the first place.

Expert:  Wendy-Mod replied 1 year ago.

Hi, I am a moderator for this topic. It seems the professional has left this conversation. This happens occasionally, and it's usually because the professional thinks that someone else might be a better match for your question. I've been working hard to find a new professional to assist you right away, but sometimes finding the right professional can take a little longer than expected.

I wonder whether you're ok with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you.

Thank you!
Wendy

Customer: replied 1 year ago.

Wendy,


First, the company is still under protection of Chapter 7, not paying it's creditors and suppose to be dissolved by Trustee and sold assets divided among creditors.


 


It does not seem LEGAL that the trustee can continue to operate the business and also put the business up for sale to the highest bidder. The assets are estimated at 10 to 50 million and the debt 50 to 100 million .


 


The bidder has offered 11.3 million. If awarded the total assets of the company which may be 50 million and also be protected under Chapter 7 to not pay any creditors goes against what Chapter 7 is all about.


 


Moreover, the company hasn't even been sold yet and the company is sending emails out to schools stating they must sell their 2014 books when hundreds have signed contracts to sell other products once they heard the company went out of business. This too does not seem fair to the schools. If the company were Chapter 11, I see no problem.... but not using Chapter 7 to ward off all creditors, resume operations and have a guy buy the company for 1/5th of what it's valued at.


 


If you can find someone to answer as I have asked whether the schools have to honor the old contracts or the new contracts they signed with alternative fund raising companies, that would help.


 


If you cannot answer that, can you answer how it is legal that a company can file Chapter 7 and continue to operate and also be sold?


 


Thank you,


 

Expert:  Wendy-Mod replied 1 year ago.
Thank you for the additional information. The professional that can help you will ask for more if they need it.

Thank you again for your patience. We will continue to search for a professional for you.

Regards,
Wendy
Expert:  socrateaser replied 1 year ago.

Hello,

Different contributor here. Please permit me to assist.

In a Chapter 7 bankruptcy case, executory contracts are deemed rejected, unless formally affirmed by the bankruptcy trustee within 60 days of the date that the bankruptcy petition is originally filed. Bankr. Code 365(d)(1).

Given that the bankruptcy case is not yet 60 days old, you would have to file a motion, now, with the court to order the trustee to either affirm or reject your contract. Otherwise, you can simply wait out the 60 days, and unless the trustee affirms the contract within that time period, then the contract is rejected and you are free to do as you wish after that date.

Hope this helps.

Customer: replied 1 year ago.


Hi,


 


Sorry to have taken so long.... when you say "formally affirmed", what does that constitute?


 


In the case of Entertainment Books, upon contacting several random merchants who had coupons in the 2013 book, they are honoring them but none of them have heard anything from Entertainment and at this time are under the impression Entertainment is Chapter 7 and there will be no 2014 book.


 


Consequently, they are signing contracts to advertise and give discount coupons in other books. Should Entertainment disburse a 2014 book expecting all of these merchants to honor thousands more 50% off coupons, it's possible merchants will not honor them. They cannot give a 50% off discount to every customer who comes in the door so most of them limit the number of coupons to be out.


 


By signing up with other coupon books as a replacement of Entertainment and then have Entertainment hit the market with double the coupons could potentially put some of these small businesses out of business.


 


Local schools were recently emailed a generic statement from the ex-Entertainment sales rep for this area. In the statement, he indicates that there will be a 2014 book and says Entertainment is honoring the contract with them to sell the books.


 


The problem is that we do not believe the rep is being paid wages, commissions or any salary and is sending this email to detour schools from signing up to do another fund raiser next fall... in hopes that their will be a book. Many of these schools have already signed contracts right after the 3/12/13 announcement that Entertainment filed Chapter 7. They felt Entertainment basically told the world:


1) Screw all the creditors we owe millions to


2) Screw all of our 650+ employees and just tell them without warning they have no job, no severance pay, no health coverage, etc.


3) Screw the schools who already signed agreements to sell their books this coming fall.


4) Screw the merchants who signed to advertise in the books.


 


So the merchants and schools scurry to make alternative plans, sign contracts with well known companies to advertise in their coupon books an/or to sell them next fall in place of Entertainment books.


 


Now, Entertainment is still being protected by Chapter 7 from the creditors, yet the Trustee gets approval to continue to operate the company. The Trustee says he has an offer to buy the company for 11.3 million when it owes 50 to 100 million, and they value the assets (real estate, etc) at between 10 to 50 million.


 


How can they have their cake and eat it too? If the company continues to operate and is going to be sold at the bottom of the amount the assets are values at, go back to doing business as nothing happened. Should they not be converting to Chapter 11 or 13 to reorganize to pay off the creditors. How can they file Chapter 7 and sell the company in tact to a low bidder, who can ignore the debt owed?


 


This sounds all too shady.

Expert:  socrateaser replied 1 year ago.
Sorry to have taken so long.... when you say "formally affirmed", what does that constitute?

A: I should have said, "formally assumed" (debtors affirm contracts; the trustee assumes them). Regardless, except in the case of a “deemed rejection," assumption, assignment or rejection of an executory contract or unexpired lease is subject to approval of the court. Bankr. Code § 365(a). A proceeding to assume, reject or assign an executory contract or unexpired lease is a contested proceeding that must be decided by the court on timely notice of motion to all parties to the agreement (though a stipulation between trustee and creditor for contract assumption approved by the court is sufficient).

How can they file Chapter 7 and sell the company in tact to a low bidder, who can ignore the debt owed?


A: A Chapter 7 is a liquidation bankruptcy. The bankruptcy trustee must liquidate the assets and pay the unsecured creditors. The debtor has little to say about the process -- it's almost all between trustee and creditors. So, while I understand your annoyance, unless you can show that the trustee is intentionally underpricing the assets so as to sell them to an insider, the details of the bankruptcy are largely irrelevant.

Concerning the continued operation of the business, the trustee, within limits can operate the business so as to maximize asset value.

It seems to me that you have some fairly simple alternatives: (1) wait for the deemed rejection; (2) try to purchase your own contract from the trustee; (3) ask the court to force the trustee to assume or reject the contract early, so that you know where you stand, as soon as possible; (4) file a motion to remove the trustee, if you believe that there is some conspiracy to dilute asset values; (5) file a motion to dismiss the debtor's bankruptcy as filed in bad faith -- i.e., that the debtor has some ulterior motive, such as a conspiracy to repurchase its own assets through strawman buyers at a discount.

Those are the options that I see.

Hope this helps.
Customer: replied 1 year ago.


Socrates, you seemed to have said two different things... In your first email, you wrote:

 

1) In a Chapter 7 bankruptcy case, executory contracts are deemed rejected, unless formally affirmed by the bankruptcy trustee within 60 days of the date that the bankruptcy petition is originally filed. Bankr. Code 365(d)(1).

Given that the bankruptcy case is not yet 60 days old, you would have to file a motion, now, with the court to order the trustee to either affirm or reject your contract. Otherwise, you can simply wait out the 60 days, and unless the trustee affirms the contract within that time period, then the contract is rejected and you are free to do as you wish after that date.

 

 

In the second email, you replaced the word Affirm with Assumed. Very confusing. What I'm trying to learn here is what does the Trustee have to do so we know where we stand?

 

There are thousands of schools who probably signed contracts last fall to sell the 2014 Entertainment Book. Like us, when the news about the bankruptcy hit, and Entertainment basically told us and the world they were "gone" and there would be no 2014 book to sell, thousands of schools like us immediately signed valid contracts with other fundraising companies to sell their products next fall.

 

We and many other area schools I've checked with have not received any letters or emails from the Trustee stating that the contracts we signed are valid and enforceable.

 

However, we and some other schools DID receive an email from their LOCAL rep stating they are honoring their contracts and he attached a copy of the one we signed.

 

We do not think he is currently being paid any wages, commissions or salary from Entertainment and just sent a personal email in hopes to "detour" us from signing up with another company.

 

We feel he may not be legally unauthorized to represent Entertainment because of no pay and is sending the email in "hopes" that they have a 2014 book and then he gets paid a commissions.

 

So what we need to know in short is when you say the Trustee has to "formally affirm" or "formally assume" the contracts... what does he have to do so we know where we stand. Does he have to send each of the area schools a certified mail letter, just send an email.... or can he just put something on the internet.

 

It would seem that as you say, the contracts are rejected by law (and we can do what we want) until we are contacted on an individual basis by the Trustee (not the sales rep).

 

As a side note, my father has a restaurant that signed to be in the 2013 book doing coupons. He and may other area restaurants (I have checked) have NOT hard anything from Entertainment. Every other restaurant in the area I have talked to believes Entertainment is Chapter 7.

 

So they, like my dad's restaurant has signed up to advertise 50% off coupons in Entertainment's local competitor book. Many of these restaurants only want to be in ONE book to minimize the saturation of coupons.

 

Should Entertainment print a 2014 book and include my dad's restaurant and all these other restaurants without contacting them first, do we have to honor the coupons?

 

Our restaurant contract says we have up to April 1st to cancel our ads in the 2014 book. Yet they filed Chapter 7 on March 12th... so we did not feel we had to contact them.... and for that matter, their phone number is XXXXX disconnected as of today.

 

So just please answer if the Trustee has to send our school a letter about our contract to sell their books and what does my dad do with his restaurant.

 

Thanks,

 

Upon your answer, I will give you highest rating and okay the $30 payment.

 

Michael

 

 

 

Expert:  socrateaser replied 1 year ago.
Hello again,

My amendment of the term "affirm," to read "assume," instead, is simply the correction of a typographic error. As previously stated, debtors "affirm," trustees "assume." It's just bankruptcy law nomenclature -- the substance of my answers are unchanged. That said, you asked:

So just please answer if the Trustee has to send our school a letter about our contract to sell their books and what does my dad do with his restaurant.

 

A: The trustee doesn't have to do anything for 60 days from the date that the bankruptcy is filed. If your contractual interests may be impaired due to the delay between the date of filing bankruptcy and the date that the contract between yourselves and the debtor is automatically deemed rejected, then you must file a motion in bankruptcy court to: (1) have the court order the trustee to immediately either assume or reject the contract; or (2) have the court provide you with relief from the bankruptcy stay, so that you may try to enforce your contractual rights against the debtor (unlikely to be granted).

 

If you do not do either of the above, then you risk being in breach of contract, should the trustee decides to assume the contract during the 60-day period before automatic/deemed rejection of the contract.


The botXXXXX XXXXXne is that if you don't honor the customer coupons during the 60-day determination period, then the customer could sue you for breach of contract, if the bankruptcy trustee assumes the contract. And, if you do honor the customer coupons during that period, and the trustee rejects the contract, then you will have given the customers a benefit that you were not required to provide.

In my opinion, the "right" thing to do is to give customers the benefit of the coupons during the 60-day determination period. If you don't, then you can practically guarantee that the customers who are refused the use of the coupons will never return to your establishment. You're in a service-oriented business, and there is nothing worse than bad customer experiences to damaging your ongoing business interests.

Obviously, the choice of what to do is yours.

Hope this helps.
Customer: replied 1 year ago.

Yikes, I hate this going back and forth. Perhaps I'm not making myself clear. For the reasons you stated about customer loyalty, my dad's restaurant (nor others in area) have no problem honoring the coupons we put in the current Entertainment book that expires 11/1/1013. Those books were sold by schools last fall 2012.


 


What I'm referring to is the future book that covers the 2014 year. These books would go on sale this coming Sept 2013 after kids go back to school and those coupons would be valid until 11/1/2014.


 


It did not cost us any advertising to be in the book except our coupon discount to the customers who come in with them. So we do not owe Entertainment anything. They print the ads, we honor the coupons, they make their money from schools selling the books. Per our contract, we had until April 1st to contact Entertainment to delete our 2014 50% off coupons.


 


When we heard they were bankrupt on 3/12/2013, and shut down their offices completely, told all the workers they had no jobs.... we signed with another coupon book to promote our restaurant. We were unable to contact Entertainment by the April 1st deadline because THEY closed and told the world and us, screw you.


 


So many of our local restaurants signed up to be in the other book that goes on sale this fall. None of us want to be in TWO books and give every customer that walks in a 50% deal.


 


We feel that Entertainment broke the contracts on 3/12/13 and by not giving us a chance to contact them prior to the cancellation date of 4/1/2013, do not feel they can automatically just throw all of us in their 2014 book if the company is sold and maintains operations under new ownership.


 


Moreover, as they are still Chapter 7, which means they do not intend on paying back the 50 to 100 million owed to creditors.... the money they'd make selling the 2014 books (that we are basically financing because of the discounts we are giving up) will go to the ne owner and not be used to pay off the creditors. Thus the new owner gets his cake and eats it too. None of us want to do business with a company who screws it's creditors out of millions of dollars and wants us to participate in their next years book to make millions for the new owner. Without us giving the discounts, Entertainment has no business or sales.


 


As far as our school goes, we too signed an agreement last fall to sell 2014 Entertainment books this coming fall. When the news said they were Chapter 7, we signed to sell a competitor book, as did many of our local schools.


 


You say that we'd be in breach of contract if we didn't sell their books, but like you also said, if my dad didn't honor the coupons, we'd lose customers. How many schools will do business with Entertainment if they try to sue all of us? We certainly would not and many others I talked to have the same thoughts.


 


It is not our fault they filed Chapter 7. They should have thought about it earlier and asked if anyone was interested in buying the company. They failed to do so and the Trustee reports in his petition that the son of the original founders claims he made a bid prior to the petition of 11.3 million.


 


There is also a website that has several Entertainment employees making statements about their feelings about the company. On 3/5/13, one week before they filed bankruptcy, an employee states that the CEO ran off with all the money.


 


Perhaps this sudden loss of capital or liquid assets caused the bankruptcy? If so, it's possible that the assets shown for bidding purposes do not include what the company is really worth if that money had not been taken and that the profitability of the company is much higher in the millions more than they claim.


 


So again, from the restaurant standpoint, for the 2014 coupon book that has not even been printed yet and we were not able to cancel per terms of the agreement because they filed for Chapter 7 two weeks prior to that cancellation date, do you feel the Trustee can make the contracts enforceable?


 


From the school standpoint, what does the Trustee have to provide us with within that 60 day period to affirm or assume the contracts we signed to sell Entertainment Books? If we don't hear from the Trustee personally by email or letter by the 60 days, does the contracts become rejected or invalid and we are able to so what we want?


 


I also understand the Trustee can file a motion to extend the 60 day period. But again, that's just holding the schools hostage and by the time school lets out in June, they won't know what they can do when school begins in September which seems unreasonable.


 


Michael


 



 


 


 


Expert:  socrateaser replied 1 year ago.
From the school standpoint, what does the Trustee have to provide us with within that 60 day period to affirm or assume the contracts we signed to sell Entertainment Books?

A: The trustee is not required to provide you with anything during the 60 day assumption/rejection period. It's up to you to decide whether or not to do nothing and wait and see if the contract is rejected by inaction -- or to file a motion to force the trustee to decide whether or not to assume/reject before the end of the 60-day period.

If the contract is assumed, then you are obligated to perform according to the contract terms and conditions. If the contract is rejected, then you are not obligated to perform, and you have a creditor claim for breach of contract against the bankruptcy estate -- for which you are entitled to file a proof of claim form.

If we don't hear from the Trustee personally by email or letter by the 60 days, does the contracts become rejected or invalid and we are able to so what we want?

A: Whether or not you receive notice from the trustee, 60 days passes, then you must check the bankruptcy court docket to see if there were any proceedings on the contract assumption issue. If not, then the contract is rejected and you are free to do as you wish.

If you want to receive notice of all actions related to the case then you can file a "request for special notice" with the bankruptcy court. See FRBP 2002(i).

Hope this helps.
Customer: replied 1 year ago.


What about the restaurant standpoint... and then we are done! *smile

Expert:  socrateaser replied 1 year ago.
School, restaurant, or anyone else, other than the debtor, is in the same legal position. Either wait 60 days and you're free of the contract, if the trustee fails to assume -- or, file a motion to force the trustee to assume/reject immediately.

Hope this helps.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33801
Experience: Attorney and Real Estate Broker -- Retired (mostly)
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