The FDIC is currently responding to one of the worst financial crises in the history of the nation’s banking system. Sheila Bair, Chairman of the FDIC, expects that 2010 “will be the high water mark for the banking crisis.”1 Just over the last two years, 268 banks have failed in the United States, which is nearly ten times the number of failed banks during the prior eight-year period.2
On January 24, 2011, the Honorable Dwight H. Williams, Jr. of the U.S. Bankruptcy Court for the Middle District of Alabama denied the Federal Deposit Insurance Corporation’s (“FDIC”) request for relief from the automatic stay in the Colonial BancGroup, Inc.
A degree of certainty—for the time being—has been restored for participants in the commercial lending and debt trading markets who have been tracking the appeal of a controversial 2009 fraudulent transfer decision in the TOUSA, Inc. bankruptcy case.i On February 11, 2011, Judge Gold of the United States District Court for the Southern District of Florida quashed (or nullified)ii the bankruptcy court’s decision, which ordered a group of lenders to disgorge $480 million received in connection with loans they extended to a joint venture involving TOUSA, Inc.
When a company saddled with potential environmental liabilities seeks bankruptcy protection, the goals of Chapter 11—giving the reorganized debtor a “fresh start” and fairly treating similarly situated creditors—can conflict with the goals of environmental laws, such as ensuring that the “polluter pays.” Courts have long struggled to reconcile this tension.
Last month, District Court Judge Shira A. Scheindlin of the Southern District of New York affirmed a bankruptcy court ruling which held that the environmental cleanup obligations of debtor Mark IV Industries, Inc. were not discharged in bankruptcy.2 Given the current legal landscape, Mark IV may make the likelihood of discharging environmental claims even more difficult, potentially undermining chapter 11 as an optimal alternative for companies saddled with environmental liabilities.