In a unanimous decision, on May 29, 2012, the Supreme Court of the United States upheld an important protection against “cramdown” afforded to lenders in Chapter 11 cases.RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. , No. 11-166 (May 29, 2012). In RadLAX, the Supreme Court held that a Chapter 11 debtor could not deprive a secured creditor of its right to credit bid for property to be sold under a plan of reorganization.

In a recent Michigan Court of Appeals case, Wells Fargo Bank N.A. vs. Cherryland Mall Limited Partnership et al., (2011 WL 6795393), the court found that the borrower’s violation of a solvency covenant triggered the conversion of the borrower’s and guarantor’s non-recourse obligations to full- recourse obligations. In light of the decision, when negotiating a non-recourse loan, parties would be well advised to pay close attention to the recourse covenants and to be very clear about which covenants, if breached, would trigger full recourse.

Background

A “fraudulent conveyance” connotes to the layperson an intentional effort to defraud someone, but in bankruptcy law this is just one type of fraudulent conveyance. Another type, sometimes referred to as constructive fraud, involves a transfer for less than “reasonably equivalent value” or, in other words, a “gift.” In bankruptcy proceedings, a trustee is chosen to administer the debtor’s estate and, to the extent feasible, to “avoid” transfers of the debtor’s assets out of the estate that place assets beyond the creditors’ reach.

On November 22, 2011, the Court of Appeals for the Eleventh Circuit issued a per curiam opinion that piqued the interest of bankruptcy practitioners nationwide and sent secured creditors scrambling to ensure that their rights to a deficiency claim had been properly preserved in pending bankruptcy cases. The Eleventh Circuit held that the IRS had waived its right to an unsecured deficiency by filing a proof of claim that evidenced a secured claim but failed to note that a portion of the claim may be unsecured.

A federal judge sitting in New York but applying Maryland law recently held that a Directors and Officers (D&O) insurer is not required to provide insurance coverage because the policyholder breached the policy’s consent-to-settle provision when it settled a securities class action without obtaining the carrier’s prior approval. Federal Ins. Co. v. SafeNet, Inc., 2011 WL 4005353 (S.D.N.Y. Sept. 9, 2011).

In recent months, U.S. bankruptcy filings – such as Omega Navigation (filed July 8 in Houston) and Marco Polo Seatrade (filed July 29 in New York) – have caught the attention of the worldwide shipping community. It is no surprise that some shipping companies have sought bankruptcy protection resulting from financial distress. Rather, the cause for surprise is that non-U.S. shipping companies have sought protection in U.S. bankruptcy courts. High-profile secured creditors in these cases have contested the exercise of the jurisdiction of U.S.

Residential Communities: Calderon Process for HOAs Likely to Be Extended Again

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Residential Communities: Proposed Amendment to Allow Owners' Attorneys at Association Board Meetings

Congress Weighs Legislation that May Preclude Suit by Bankruptcy Trustees Against Colleges and Universities to Recover a Bankrupt Parent's Tuition Payments for a Student

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