When the real estate market and financial markets tumbled during 2007-2008, the fallout was felt by financial institutions from large multi-billion dollar banks to small Community Banks. As these banks struggled to stay alive, a trend emerged for bank holding companies to market and sell a distressed bank through Section 363 of the Bankruptcy Code. This alternative was utilized in many instances as opposed to a traditional “reorganization plan” or takeover by the FDIC.

Often, when businesses fail, they end up either in bankruptcy court as a chapter 7 debtor or in a state court liquidation proceeding such as an assignment for the benefit of creditors. In these instances, a fiduciary is appointed to wind-down the affairs of the business, liquidate assets, and pay allowed claims. In many situations the fiduciary is left with records which are either incomplete or in disarray and little money to pay the costs of administration. One often overlooked asset for easy recovery can be unclaimed funds.

As many areas continue to rebound slightly from the real-estate downturn, much litigation still exists related to the exposure of guarantors for corporate-entity real estate loans.   In many instances a corporation or Limited Liability Company (LLC) may have filed for Chapter 11 in an effort to stave off a foreclosure and restructure the secured debt. However, it is well settled that a corporate bankruptcy case does not operate to discharge a guaranty from a guarantor who is not in bankruptcy.

When seeking approval of a settlement in a bankruptcy case, the usual vehicle for approval is the filing of a motion pursuant to Bankruptcy Rule 9019 and a subsequent hearing. While Rule 9019 and case law require certain factual and legal thresholds be established to gain the approval, the Rule does not specifically require an evidentiary hearing on motions to approve settlements.