The March 2013 Commercial Financial Services Brief included a cautionary tale about a secured party’s inadvertent loss of its security interest in its borrower’s bankruptcy case as a result of the secured party having mistakenly filed a UCC termination statement. This article describes another situation in which a secured party experienced a similar haunting outcome.

Those who practice in the secured transactions arena, and our clients, understand the importance of filing financing statements and continuing them on a regular basis. Failure to maintain perfection of a security interest can be disastrous to a secured lender in the case of a bankruptcy case involving its borrower. Financing statements can, however, sometimes be mistakenly terminated. Two recent cases illustrate the issues which may arise when a financing statement is inadvertently terminated.

In Carroll v. Farooqi, 2013 U.S. Dist. LEXIS 22329 (N.D. Tex. Feb. 19, 2013), the United States District Court for the Northern District of Texas affirmed a U.S. Bankruptcy Court’s holding that an individual had standing to pursue an action against a franchisor under the Texas Deceptive Trade Practices Act (DTPA). The case involved an unsuccessful sale of a Salad Bowl franchise. The CEO of the fast causal franchise company (who was also its president, chairman, and CFO) contacted a potential buyer of a franchise.

In what it described as a novel issue of law in the Eighth Circuit (the Federal Circuit including Minnesota and North Dakota), the United States Bankruptcy Appellate Panel (BAP) for the Eighth Circuit recently ruled in In re Lewis and Clark Apartments, LP that, in a valuation of the debtor’s low income housing project for purposes of its proposed Plan of Reorganization, the value of the low income housing tax credits (LIHTC) attributable to the project must be included.  While this is a result lenders involved in the LIHTC industry may have assumed, it was not settled

The U.S. Supreme Court has delivered its much anticipated decision in RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. ___ (2012), holding that a secured creditor may not be denied the right to credit bid at a bankruptcy sale of its collateral that is conducted pursuant to a Chapter 11 plan of reorganization.

On May 15, 2012, the Court of Appeals for the Eleventh Circuit affirmed two key rulings made by a Florida Bankruptcy Court in the long-running bankruptcy case of TOUSA, Inc., once one of the largest homebuilders in the country. The Bankruptcy Court had avoided—as fraudulent transfers—the liens granted by TOUSA’s subsidiaries (the Subsidiaries) to new lenders (the New Lenders) that provided $500 million in financing for TOUSA to payoff debt that was owed by TOUSA, but not the Subsidiaries, to then existing lenders (the Old Lenders).

In the recent decision in In Re Duckworth (March 22, 2012), the Chief Bankruptcy Judge for the Central District of Illinois issued a decision that may have far reaching effects on some lenders using automated loan documentation software¹. In this case, the State Bank of Toulon (the “Bank”) generated loan documents for a $1.1 million agricultural loan.

On March 28, 2012, the Minnesota Legislature gave final passage to HF 382, a comprehensive revision of Minnesota statutes governing receiverships and assignments for the benefit of creditors (ABCs) in the state. Following signature by the governor (which is expected), the new statutes will take effect on August 1, 2012. Sponsored by the Minnesota State Bar Association and its Business Law and Real Property Sections, the new statutes are the product of more than two years of work by a committee of Minnesota lawyers and receivers.

Receiverships