On August 20, 2010, Petroflow Energy Ltd ("Petroflow"), filed a petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware. Months prior to Petroflow's filing for bankruptcy, the company's subsidiaries, North American Petroleum Corporation USA and Prize Petroleum LLC, filed petitions for bankruptcy in Delaware. After Petroflow filed for bankruptcy in August, it filed a motion with the Bankruptcy Court seeking to have the orders entered in the "First Filed Debtors' Cases" (i.e. North American Petroleum's and Prize Petroleum's cases), made applicable to Petroflow's bankruptcy proceeding.
There is nothing extraordinary about the relief Petroflow seeks in its motion. By filing the motion, the company seeks to save the time and expense of having to file, notice and present the same motions that if filed in the "First Filed Cases." However, in order to obtain such relief, Petroflow requests the Court exercise its equitable powers pursuant to section 105 of the Bankruptcy Code. This post will look at how the Court can turn back the clock so that the orders entered in a previously filed case will have the full force and effect in a newly filed bankruptcy proceeding.
Equitable Power of the Court
Under section 105(a) of the Bankruptcy Code, a bankruptcy court can "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." In its motion, Petroflow cites to an Eighth Circuit decision for the proposition that "the overriding consideration in bankruptcy ... is that equitable principles govern." In re NWFX, Inc., 864 F.2d 588, 590 (8th Cir. 1988). However, a bankruptcy court's equitable jurisdiction has its limits. Again, looking at the Petroflow motion, the Debtor cites In re Cooper Props. Liquidating Trust, Inc., for its holding that a bankruptcy court must protect the equities of a debtor "as long as that protection is implemented in a manner consistent with the bankruptcy laws." 61 B.R. 531, 537 (Bankr. W.D. Tenn. 1986)(emphasis added).
Petroflow's motion seeks entry of an order finding that the first day orders in the "First Filed Cases" apply to the Petroflow bankruptcy. Without this relief, Petroflow would have to seek the same relief granted in the North American Petroleum and Prize Petroleum cases, which in turn would create an unnecessary burden on Petroflow, its creditors and the Court. In support of its motion, Petroflow cites to other bankruptcy proceedings where similar orders were entered by the Court. These bankruptcy proceedings include Semcrude, Chi-Chi's, Lehman Bros. and WorldCom.
As I mentioned before, there is nothing extraordinary about the relief sought by Petroflow. The motion is worth review, however, as it is provides an example of how parties can invoke the equitable jurisdiction of the Court under section 105 of the Bankruptcy Code.
The Petroflow bankruptcy is before the Honorable Christopher S. Sontchi. Click here to read my post from May of this year discussing the North American Petroleum bankruptcy. That post looks at why the company filed for bankruptcy, as well as what the company's objectives are while in bankruptcy.