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February 26, 2009 7:13 PM

The Bankruptcy Files: Auto Suppliers, Memory Chips, Sea Containers, and Swimsuits

Posted by Brian Baxter

Kirkland & Ellis is just one firm that continues to be busy with bankruptcy work, helping one company exit two years of bankruptcy proceedings while seeking to avoid a Chapter 11 filing for another.

Weil, Gotshal & Manges, Lenny Dykstra, and former Sullivan & Cromwell partner-turned-plaintiffs lawyer Steven Thomas also make appearances in our weekly bankruptcy roundup:

Axium International

When the entertainment industry's third-largest payroll firm filed for Chapter 7 liquidation in January 2008, it left workers everywhere--from stage hands at the major studios to airline industry employees--waiting for their wages.

And that was before allegations of theft and outright fraud by senior executives at Axium International surfaced. (The Los Angeles-based company was once worth $1.8 billion.)

Executives at Axium are alleged to have underpaid federal payroll taxes by as much as $100 million. Since the certified audit statements submitted by Axium's auditors allegedly painted a rosier picture of the company's profitability, creditors are clamoring for payback.

Enter Steven Thomas, the former Sullivan & Cromwell partner-turned-plaintiffs lawyer profiled in this February 2008 feature story. Thomas has been hired by Axium's Chapter 7 trustee--Howard Ehrenberg of Los Angeles's SulmeyerKupetz--as special litigation counsel.

In a civil suit filed on Thursday in the Southern District of New York, Thomas, a founding partner of Venice, Calif.-based Thomas, Alexander & Forrester, sought out a familiar adversary: Chicago-based accounting firm BDO Seidman and its Brussels-based parent BDO Global Coordination.

In August 2007, Thomas secured a $522 million damages verdict against BDO Seidman, which a jury found negligent in annual audits conducted in connection with the largest bank fraud in Miami history. It was the largest verdict ever against a U.S. accounting firm.

Unfortunately for BDO Seidman, it also served as Axium's auditor.

"At the end of the day, [Axium] wasn't substantially, or partially, or even narrowly a profitable company," said Ehrenberg in a statement. "It was insolvent."

Ehrenberg's firm has reaped more than $400,000 in fees and expenses from Axium as Chapter 7 trustee. As counsel to the trustee, Kirkland & Ellis was paid nearly $30,000 for work done in a six-month period ending last October. The trustee's special litigation and insurance coverage counsel at Reed Smith also are set to receive roughly $540,000.

Thomas will look to extract much more than that from BDO Seidman, which is being represented by L.A.-based White & Case litigation partner Travers Wood. BDO Global has yet to retain counsel.

Doubledown Media

Doubledown Media ceased operations earlier this month after a key investor withdrew financing. On Wednesday the publisher of glossy magazines like Trader Monthly, Cigar Report, Dealmaker, and Private Air made its demise official by filing for Chapter 7 liquidation in Manhattan.

Doubledown has turned to New York firm Kucker & Bruh to serve as bankruptcy counsel.

The New York-based media company was in the news in May when it sued former New York Mets outfielder Lenny "Nails" Dykstra for skipping out on a deal to start a custom magazine called The Players Club, which would provide financial advice to professional athletes.

Dykstra, who somewhat inexplicably garnered a reputation as a well-regarded investor after the end of his playing career, also seems to have trouble paying his lawyers. (The New York Post reported in November that K&L Gates had begged off from representing Dykstra in a suit brought by the ex-ballplayer's accountants after he stopped paying the firm.)

Everything But Water

The Orlando-based retailer of upscale men's and women's swimwear found itself underwater on Wednesday when it filed for bankruptcy in Delaware.

Everything But Water sells swimwear in 70 stores in 26 states, but the company stated in court documents that the recent economic downturn brought about a 23 percent reduction in sales.

Founded in 1984, Everything But Water was bought by Bear Stearns Merchant Banking in April 2006. The company, which is now owned by JPMorgan Chase, is seeking $5 million in debtor-in-possession financing.

New York bankruptcy boutique Halperin Battaglia Raicht has been retained as Chapter 11 counsel with Pennsylvania firm Elliott Greenleaf serving as Delaware and conflicts counsel.

Founding partner Alan Halperin stated in court documents that his firm would bill between $195 and $475 per hour for attorneys fees. Elliott Greenleaf lead partner Rafael Zahralddin's hourly rate is $575.

Greatwide Logistics

Dallas-based logistics and freight transportation provider Greatwide received approval from a bankruptcy court on February 20 to be sold to a group of its debt holders led by New York-based private equity firm Centerbridge Partners.

Latham & Watkins insolvency partners David Heller and Keith Simon, finance partner Melissa Alwang, and M&A partners Howard Sobel and Jennifer Perkins in New York advised Centerbridge on the $440 million deal. Tax partner Joe Kronsnoble in Chicago and employee benefits partner Bradd Williamson and IP partner Jeff Tochner in New York also provided counsel to Centerbridge.

Greatwide filed for Chapter 11 protection in Delaware last October. Its bankruptcy cocounsel at Willkie Farr & Gallagher has billed the company for nearly $2 million in fees and expenses since that time. Delaware firm Young Conaway Stargatt & Taylor has billed Greatwide for roughly $111,000.

Magna Entertainment

Shareholders of Aurora, Ontario-based MI Development--a spinoff of Canadian auto parts manufacturer Magna International--are pushing for a bankruptcy filing by the company's Magna Entertainment subsidiary.

MI Development owns 95 percent of Magna Entertainment, which is a leader on the North American horseracing circuit with ownership of racetracks like Santa Anita Park in California, Pimlico in Baltimore, and Gulfstream Park in Florida.

Weil, Gotshal & Manges has reportedly been hired by Magna Entertainment to prepare a bankruptcy filing.

Qimonda North America

The U.S. unit of Munich-based memory chip maker Qimonda AG filed for bankruptcy in Delaware on February 20. Qimonda AG, itself an affiliate of Neubiberg, Germany-based Infineon Technologies, filed for bankruptcy in Germany in January after it was unable to secure government financing.

Simpson Thacher & Bartlett and Richards, Layton & Finger have been retained by Qimonda as Chapter 11 counsel. Neither firm had yet to file billing information with the bankruptcy court.

Ritz Camera Centers

The party is over for Beltsville, Md.-based Ritz Camera Centers, which began as a one-man portrait studio in 1918 and grew to a chain of over 800 stores nationwide.

The recession and a shift by customers to digital photography has contributed to reductions in revenue. A steep decline in holiday sales also hurt the company. As a result, Ritz filed for Chapter 11 protection from creditors in Delaware on February 22.

Mid-Atlantic firm Cole, Schotz, Meisel, Forman & Leonard was retained as bankruptcy counsel with Baltimore firm Thomas & Libowitz serving as tax counsel. Neither firm had yet to file billing information with the bankruptcy court.

Sea Containers

The odyssey is finally over for Sea Containers.

After sinking into bankruptcy under a heavy debt load in October 2006, the Hamilton, Bermuda-based marine container leasing company finally completed its restructuring and emerged from Chapter 11 protection on February 11.

Kirkland partners advising Sea Containers on both sides of the Atlantic worked overtime in transferring assets to a new company called SeaCo Ltd. David Eaton and David Agay in Chicago and Lyndon Norley, Partha Kar, and Kon Asimacopoulos in London led the team from Kirkland advising Sea Containers.

The firm helped secure $127 million from two banks to pay back restructuring loans. Shareholders of the newly created company will include former Sea Containers bondholders and two U.K. pension funds.

"This case presented ground-breaking cross-border issues primarily because the U.K. pension liabilities had to be dealt with in the U.S. Chapter 11 regime," said Norley in a statement. "We worked closely with the U.K. regulator, the scheme trustees, and their advisers to come to a unique solution."

According to documents filed with the bankruptcy court in Delaware, Kirkland billed Sea Containers for roughly $22 million in fees and expenses during the 27 months it languished in Chapter 11.

Visteon

The struggling Van Buren Township, Mich.-based auto parts supplier has been reported to be on the brink of a bankruptcy filing for the past several months.

But after Visteon posted a fourth-quarter loss of $328 million on Wednesday, which brought total losses in 2008 to $663 million, many doubt that the company spun off from Ford in 2000 will be able to make its next debt payment in early March.

Kirkland lawyers have reportedly been retained by the company to prepare a possible bankruptcy filing.

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Thanks for the information.I expect more articles from you in future.The article was very helpful and informative.

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