Home

The Zemanian Law Group offers a proven track record of successfully handling the legal needs of institutional lenders, trade creditors, unsecured creditors committees, municipalities and bankruptcy trustees and examiners.  Descriptive examples of our relevant expertise and experience are included in this website for each of the following topics:

Trustee/Examiner Engagements:

 

                The Norfolk bankruptcy court has approved Pete Zemanian’s engagement as special counsel on behalf of several local chapter 7 trustees, involving a multitude of issues relating to the turn over estate assets, compelled production of documents and information critical to the estate, challenges to improperly perfected liens, prosecution of insider litigation and the handling of preference actions.  He also has assisted in the creditor election of non-panel trustee and has himself served as transfer agent for a local liquidating estate.

               

                Pete Zemanian also has notable experience in handling motions for the appointment of operating trustees and examiners in chapter 11 cases, and has assisted in the examiner investigations and reports.

Landlord/Tenant and Executory Contract Issues:

 

                A basic precept of bankruptcy is that estate assets may not be used for payment of general claims except pursuant to a confirmed plan of reorganization or under court-approved trustee disbursements.  An important exception to this rule exists for unexpired leases and executor (i.e., mutually unperformed) contracts, on the theory that estate funds must be spent in order to preserve a corresponding (or more valuable) return.  This circumstance most commonly arises in the context of real property leases.

 

                We are familiar with the competing rights, remedies and tensions at play between landlords and tenants in bankruptcy, including challenges and defenses to landlords’ liens, the assertion of administration claims and the compelled assumption or rejection of the underlying lease.  Pete Zemanian recently represented a secured creditor (derivatively through the bankruptcy estate) in district court and Fourth Circuit appeals of a cutting-edge case involving the debtor’s assumption and assignment of a lease in derogation of a restrictive use provision.  See LaSalle Nat’l Trust, N.A. v. Trak Auto Corp., 288 B.R. 114 (E.D. Va. 2003), rev’d, 367 F.3d 238 (4^th Cir. 2004).

 

                Many of the same issues and complications arise in the context of personal property leases and other executor contracts.  Pete Zemanian has handled motions for the compelled assumption of environmental remediation agreements, the adjustment of rights between a franchisor and franchisee, and the declaration of “true lease” status for equipment leases challenged as disguised security agreements.  He also successfully handled the novel issues raised in the trial and appeal of the non-assumable nature of certain partnership rights in bankruptcy.  See In re Catron, 158 B.R. 824 (Bankr. E.D. Va. 1992), aff’d, 158 B.R. 629 (E.D. Va. 1993), aff’d, 25 F.3d 1038 (4^th Cir. 1994).

Avoidance Actions:

 

                Bankruptcy is essentially a statutory framework through which state and federal substantive law may be processed when one or more of the parties is insolvent.  Most Bankruptcy Code provisions are procedural in nature.  The main exception to this rule is in the area of avoidance actions, which are primarily substantive and mostly unique to bankruptcy.

 

                “Strong Arm” Powers.  The Bankruptcy Code empowers trustees to challenge liens and transfers granted by a debtor under hypothetical lien and judgment creditor rights.  We are intimately familiar with the legal and strategic concepts involved in prosecuting and defending strong-arm litigation, and have handled these suits both on behalf of trustees and defensively on behalf of secured parties and purchasers of debtor assets.

 

                Fraudulent Transfers.  Not all “fraud” is sinful in the bankruptcy sense.  A morally untainted person may still be the subject of a “fraudulent transfer” suit if he or she received debtor property during the two years preceding bankruptcy, while the debtor was insolvent, for which “less than reasonably equivalent value” was paid.  In addition to having handled the prosecution and defense of a substantial number of fraudulent transfer suits, we also have experience in structuring liens and transfers in the fashion most likely to avoid a fraudulent transfer attack in the event of a subsequent bankruptcy.

 

                Preferences.  One of the most frustrating experiences for any creditor of a bankruptcy party is to be sued for preference recovery, particularly on accounts for which the creditor did not receive full payment.  Preferences are unique to bankruptcy.  They are essentially a tool by which trustees are empowered to recapture lawful payments under a notion that the creditor received more than his or her fair share as compared to other creditors.  As subjective as this “fairness” notion is in concept, the functional reality is that preference suits are highly technical and turn on mostly objective criteria.  We have comprehensive experience in all aspects of defending preference suits, and have routinely negotiated settlements for a fraction of the amount sought by the trustee.

 

                Miscellaneous Avoidance Actions (in addition to the “big three” discussed above).  We also have experience in handling the less common avoidance attacks, including turn over proceedings, statutory lien challenges, prosecution and defense of landlord’s liens, postpetition transfers and disputes regarding after-acquired property.

Trade Creditor and Unsecured Creditors’ Committees:

 

                Given the elevated rights available to secured and priority creditors, it is often the interests of the general creditors that are most exposed in the bankruptcy process.  Pete Zemanian has developed significant expertise in all of the special rights that may be available to general creditors, including offset/recoupment, reclamation and creditors’ committees.

 

                Offset/Recoupment.  To the extent that a general creditor both owes an obligation to and holds a claim against the debtor, that creditor may be able to effect a dollar-for-dollar “offset” on “recoupment”.  This affords the unsecured creditor the equivalent of secured-creditor status up to the value of the offset or recouped obligation.  The requirements for establishing offset or recoupment rights can be complex, sometimes turning on very subtle differences.  We offer unmatched expertise on these special trade creditor remedies.

 

                Reclamation.  For an extremely limited span following delivery of goods that have been sold to an insolvent buyer, the seller has the ability to affect a “reclamation” and thereby obtain enhanced rights.  Failure to timely act will effect a loss of those rights.  We are experienced in all aspects of preserving and asserting reclamation rights.

 

                Creditors’ Committees.  Consistent with the collective nature of the bankruptcy process, most chapter 11 reorganization cases will afford the general creditors an opportunity to organize a “committee” of representative creditor interests.  In addition to combining forces on issues common to the entire unsecured creditor base, participation in an unsecured creditors’ committee enables trade creditors to influence the terms of the debtor’s chapter 11 plan, negotiate for concessions with a greater degree of leverage, and ultimately to pass back to the bankruptcy estate some or all of the costs of bankruptcy representation.  Pete Zemanian has experience, either as lead or local counsel, in many of the most significant committee engagements in the Norfolk and Newport News divisions, including the cases of American Drafting & Laminating Company, Stewart Foods, Inc., Flight International, Inc., Marine Hydraulics International, Inc., Fine’s Men’s Shops, Inc. and East Coast Building Supply Corp.

General Litigation, Procedural Issues and Appellate Matters:

 

                Bankruptcy can be an intimidating process for the uninitiated, both due to the specialized language and concepts and due to the strict procedural rules governing its practice.  Adding another layer of complexity is the exclusively electronic filing system now employed by the bankruptcy courts in the Eastern District of Virginia.  We are available to assist in a lead or supporting role for those confronted with the bankruptcy process.

 

                General Litigation.  We have broad experience, and notable success, with virtually all aspects of bankruptcy litigation, including nondischargeability actions, claims objections, adequate protection motions, estimation proceedings, valuation hearings, disclosure statements and plan confirmation issues and injunctive relief.  We are also available to assist out-of-state professionals with the engagement process and with pro hac vice appearances.

 

                Procedural Issues.  Occasionally, an issue in dispute can be resolved on a purely procedural basis, without having to resort to the underlying substantive principles.  We have experience in handling motions to withdraw the bankruptcy court’s jurisdictional reference, request for abstention, venue objections and other such pleadings.  Pete Zemanian was recently published in the Bankruptcy Law News, a publication of the bankruptcy section of the Virginia State Bar, on the developing law governing the concept of “judicial estoppel” in bankruptcy.

 

                Appellate Matters.  We have frequently defended, and occasionally pursued, appeals of bankruptcy court rulings to the district court and to the Fourth Circuit Court of Appeals.  We are available to assist on all issues of compliance with the rules governing appeals, with the mandatory Fourth Circuit mediation process, and with the actual briefing process.  For cases that warrant it, we are available to provide advice and counsel, or assume the lead duties, on appellate arguments.

Loan Defaults and Workouts:

Loan Audits:

 

                To state the obvious, in order to resolve a problem, it is necessary to first identify what the problem is.  In the circumstances of a distressed borrower, the lender often is best served by re-visiting the underwriting analysis employed at the time of loan approval.  From a legal standpoint, this is achieved by means of a loan audit - - an analysis of the debt and security attributes of the subject loan.

 

                Pete Zemanian has authored an outline for professionals on the requisites for performing loan audits, and is a regular speaker on the topic.  Particularly for secured lenders who have received signals of financial distress from a borrower, the best (and maybe only) opportunity to shore up possible credit or security concerns is before a bankruptcy petition is filed.  The loan audit serves the function of diagnosing needed, or helpful, corrections.

 

                As directed by the client, the loan audit process can be as limited as a simple review of filed financing statements and recorded mortgage instruments or as thorough as a complete review and evaluation of the entire debt and security structure supporting the subject loan.

Substitution/Augmentation of Collateral:

 

                The third “c” in the proverbial “Five C’s of Credit” stands for collateral.  In a credit underwriting analysis, however, collateral is the least desirable means for projecting loan repayment.

 

                The importance of collateral becomes apparent in the context of a borrower’s financial distress and is usually the most (and sometimes only) effective means for repayment.  Depending upon the circumstances facing a particular credit, the most sensible resolution may be a pledge of new collateral or a swapping out of existing security interests.  Not only do these options shore up the lender’s credit exposure, but they may afford the debtor with business-saving liquidity.

 

                We are experienced in the strategic aspects of negotiating for supplemental collateral and in the mechanical requisites for achieving properly perfected liens with the least risk of subsequent avoidance litigation.

Loan Workouts/Restructures:

 

                There is no single, exclusive method for attempting a workout or restructure of a distressed loan.  The options available to the parties are limited only by their creativity, willingness to negotiate, and capacity for adjustment of a defaulted credit.

 

                From a lender’s perspective, the first decision is how to properly staff the workout “team”.  We have the flexibility to work one-on-one with a single, designated representative or within a larger group.  Once assembled, the workout team’s first task is to identify the problem being faced by the particular borrower or credit.

 

                Depending upon the nature of the problem(s) identified, the solution can take a variety of forms involving some or all of the following adjustments:  an additional capital infusion, additional collateral, additional guaranties, an affidavit of financial condition, a pre-negotiation release, pre-negotiation fees, cure of loan or collateral defects, a change in management, engagement of a third-party consultant, and ultimately negotiated terms for forbearance or for restructure of the loan.

 

                Having drafted numerous agreements and tailored provisions in the area of loan workouts and restructures, we are able to offer comprehensive assistance to both lenders and borrowers in this arena.

Lien Enforcement and Collection:

Note and Guaranty Suits:

 

                Contracts, at their most essential level, are enforceable promises, pursuant to which one or both parties commit either to do or not to do something.  Notes and guaranties are enforceable promises to pay a certain amount, on a certain schedule and under certain conditions.  When that promise is broken, state law provides remedial options to the non-breaching part - - most commonly the commencement of a suit for collection.

 

                If properly asserted, note suits can frequently be resolved “on the pleadings”, such that the expense and delay of an evidentiary hearing is unnecessary.  We are experienced in the methods that are most likely to streamline the note suit process.  In addition, there are sometimes opportunities for coupling a note suite with other types of remedial action, thereby increasing the likelihood of a swift and satisfactory recovery.  These alternative remedies may include direct collection of accounts, attachments, prejudgment garnishment or charging orders, the filing of an involuntary bankruptcy petition, and suits for dissolution of a defunct borrower entity.

 

                We offer advice and assistance in selecting the optimal course for effecting collection of defaulted notes and guaranties under Virginia law and representation in the course of prosecuting suits for collection or for the implementation of alternative remedies.

Real and Personal Property Foreclosures:

 

                Real Estate.  Pete Zemanian is recognized as an authority on the strategic and mechanical procedures for foreclosing real estate in Virginia.  He has produced a number of CLE-related outlines on Virginia foreclosures and is a regular speaker on this topic.  His foreclosure experience includes major office buildings, industrial facilities, hotels and restaurants, apartment complexes, residential and commercial developments, shopping centers, assisted living facilities, agricultural property and raw land.  Depending upon the requirements of the client, we are available to serve as foreclosure trustee, as counsel for the foreclosing trustee, as counsel for the foreclosing party, as special counsel for purposes of attempts to enjoin a foreclosure and as counsel for prospective bidders.

 

                Personalty.  Foreclosure of liens in tangible or intangible personal property is also governed by statute, the provisions of which were overhauled in 2001.  We are fully familiar with all requisites for conducting secured party sales, either public or private, or for the retention of collateral in full or partial satisfaction of the secured indebtedness.  Our experience in secured party sales includes vehicles, office furniture and equipment, heavy construction equipment, a variety of industrial products, commercial paper, and various intangible rights and interests.  We are again available to provide our expertise as counsel for the foreclosing party, as counsel for the debtor seeking to resist a secured party’s sale or as counsel for a prospective bidder.

Receiverships:

 

                An often overlooked remedy in Virginia is the appointment of a receiver to assume control of a defaulting debtor’s business or assets.  Having assisted in the appointment of receivers for several large accounts in the Richmond area and in southeastern Virginia, we are familiar with the legal principles and procedures underlying the appointment of a receiver.

 

                Depending upon the dollar amounts and lender concerns at stake in any particular account, the receivership appointment may be sought on an emergency basis or following a full hearing on the merits.  We are available to assist with the prosecution or defense of a receivership suit or, in the appropriate circumstances, to serve as court-appointed receiver.

Injunctive and Other Special Relief:

 

                Occasionally, money damages will not be sufficient to correct an ongoing injustice.  In these circumstances, injunctive or other special relief is often necessary.  We have experience in handling all manner of non-monetary suits for enforcement of commercial obligations, including interpleader actions, suits for specific performance, prejudgment attachment, charging orders, applications for declaratory relief, motions for restraining orders, requests for accountings, and suits for partition of property.

Commercial Agreements:

Sale/Acquisition Agreements and Real/Personal Property Leases:

 

                Any transaction that involves more than a retail purchase is likely to warrant a tailored commercial contract or lease.  We offer comprehensive expertise in the crafting or revision of sale contracts and leases covering most types of property.  Our experience also extends to consignment, bailment and escrow agreements.

 

                In the realm of equipment leasing, a legal challenge will sometimes be raised to the “true lease” nature of the transaction, as opposed to a disguised security arrangement.  We have successfully handled both the challenge and defense of equipment leases on this developing legal front, and can offer advice on how best to structure a transaction to minimize the risks of future challenges.

Licensing, Service and Other Operational Agreements:

 

An oral agreement isn’t worth the paper it’s written on.

Samuel Goldwyn

 

                Many business functions can be handled without the need for a formal written contract.  However, the reality is that any operating business is likely to face the need for contract assistance on a fairly regular basis.  We have experience in handling the negotiation and documentation of several common commercial agreement forms including basic loan instruments, letters of intent, payment and performance bonds, software licensing and service agreements, source code agreements, sponsorship contracts, distributor agreements, franchise agreements, employment agreements, noncompetition agreements, and other such operational instruments.