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The Court of Appeals for the Fourth Circuit is the first court of appeals to determine whether the absolute priority rule continues to apply to individual chapter 11 debtors. Taking the "narrow view" adopted by certain courts, the Fourth Circuit held that the rule was not abrogated by the amendments of the Bankruptcy Abuse Prevention and Consumer Protection Act, and therefore affirmed the bankruptcy court’s order denying confirmation of the proposed plan.

Filed under:

USA, Insolvency & Restructuring, Litigation, Reed Smith LLP, Debtor, Debt, United States bankruptcy court, Fourth Circuit

Authors:

Alison Wickizer Toepp

Location:

USA

Firm:

Reed Smith LLP

Following Castleton Plaza, competitive bidding required where insider asserts ‘new value’ exception to absolute priority rule

2013-06-12

In re GAC Storage Lansing, LLC, No. 11-40944 (Bankr. N.D. Ill., Feb. 27, 2013)

CASE SNAPSHOT

The court denied confirmation of the debtor’s plan, finding that: (i) the debtor failed to demonstrate that it would be able to obtain financing to pay off the balloon payment; (ii) the proposed transfer of new equity to an individual with indirect ownership interest violated the absolute priority rule; and (iii) the plan’s injunction barring actions by the secured creditor against the guarantors was overly broad.

FACTUAL BACKGROUND

Filed under:

USA, Illinois, Banking, Insolvency & Restructuring, Litigation, Reed Smith LLP, Debtor, Limited liability company, Maturity (finance), EBITDA, Debtor in possession

Authors:

Ann E. Pille

Location:

USA

Firm:

Reed Smith LLP

Subtenant retains possessory rights under section 365(h) despite explicit free and clear section 363(f) sale

2013-06-12

In re Zota Petroleums, LLC, 482 B.R. 154 (Bankr. E.D. Va. 2012)

CASE SNAPSHOT

Filed under:

USA, Virginia, Insolvency & Restructuring, Litigation, Real Estate, Reed Smith LLP

Authors:

Brian M. Schenker

Location:

USA

Firm:

Reed Smith LLP

Defrauded initial lien holder maintains priority over subsequent innocent lenders

2013-06-12

In re RAG East, LP– Case no. 12-04545-CMB (Bankr. W.D. Pa. March 4, 2013)

CASE SNAPSHOT

The court granted summary judgment in favor of a defrauded lender in a lien priority dispute with subsequent third-party lenders. The court determined that the lien of a purchase money mortgage that was allegedly released pursuant to a fraudulent satisfaction piece nonetheless had priority over the liens held by innocent third parties who provided loans to the debtor without notice of the fraud.

FACTUAL BACKGROUND

Filed under:

USA, Pennsylvania, Banking, Insolvency & Restructuring, Litigation, Reed Smith LLP, Debtor, Fraud, Mortgage loan

Authors:

Joseph D. Filloy

Location:

USA

Firm:

Reed Smith LLP

Trustee fails to carry burden, court affirms pre-petition transfers to cover check-kiting losses not avoidable preference

2013-06-12

The Unsecured Creditors Comm. v. Community Bank(In re Stinson Petroleum Co., Inc.), Case No. 12-60234 (5th Cir., Jan. 7, 2013)