Your franchisee files bankruptcy; is this good news or bad news? It could be either depending on whether the debtor wishes to keep the franchise in place or plans to let it go. The Bankruptcy Code has special rules on how a debtor can treat this type of agreement where it was entered into prior to the filing of the bankruptcy and remains in effect as of the time the case was filed.

For the third time in as many years, the Delaware Chancery Court has handed down an important ruling interpreting the interaction between federal bankruptcy law and Delaware corporate law. The thorny question this time was whether a bankruptcy court’s determination that the directors of a corporation acted in good faith when they authorized a chapter 11 filing precluded a subsequent claim that the directors breached their fiduciary duties by doing so. The Delaware Chancery Court concluded that it did, ruling in Nelson v.

The ability of a chapter 11 debtor-in-possession (“DIP”) or bankruptcy trustee to assume or reject unexpired leases or contracts that are “executory” as of the bankruptcy filing date is one of the most important entitlements created by the Bankruptcy Code. It allows a DIP to rid itself of onerous contracts and to preserve contracts that can either benefit its reorganized business or be assigned to generate value for the bankruptcy estate and/or fund distributions to creditors under a chapter 11 plan.

The solicitation of creditor votes on a plan is a crucial part of the chapter 11 process. At a minimum, a chapter 11 plan can be confirmed only if at least one class of impaired creditors (or interest holders) votes to accept the plan. A plan proponent’s efforts to solicit an adequate number of plan acceptances, however, may be complicated if creditors or other enfranchised stakeholders neglect (or choose not) to vote.

As a general rule, absent an express agreement to the contrary, expenses associated with administering the bankruptcy estate, including pledged assets, are not chargeable to a secured creditor’s collateral or claim but must be paid out of the estate’s unencumbered assets. Recognizing, however, that the bankruptcy estate may be called upon to bear significant expense in connection with preserving or disposing of encumbered assets as part of an overall reorganization (or liquidation) strategy, U.S.

Participants in the multibillion-dollar market for distressed claims and securities had ample reason to keep a watchful eye on developments in the bankruptcy courts during each of the last three years. Controversial rulings handed down in 2005 and 2006 by the bankruptcy court overseeing the chapter 11 cases of failed energy broker Enron Corporation and its affiliates had traders scrambling for cover due to the potential that acquired claims/debt could be equitably subordinated or even disallowed, based upon the seller’s misconduct.

In Go West Entertainment, Inc. v. New York Liquor Authority (In re Go West Entertainment, Inc.),1 the United States Bankruptcy Court for the Southern District of New York refused to extend the automatic stay or to utilize its other injunctive powers to prevent state regulatory authorities from revoking a debtor’s liquor license.

The U.S. Court of Appeals for the Tenth Circuit held on July 15, 2008, that a major creditor with a seat on the debtor’s board of directors and a 10.6% equity interest was not an insider in a bankruptcy preference suit. In re U.S. Medical, Inc., 2008 WL2736658 (10th Cir. 7/15/08).

The Court of Appeals for the Sixth Circuit became the first circuit court to rule on the issue of whether a bankruptcy court has authority to retain a case filed in improper venue. The Court found that a bankruptcy court may not retain jurisdiction on a case that was filed in an improper venue. In Thompson v. Greenwood, 507 F.3d 416 (6th Cir. 2007), the Sixth Circuit follows strict statutory construction in holding that where there is improper venue a bankruptcy court must dismiss the case or transfer it to a district where it could have been brought originally.

In a recent decision of the United States Bankruptcy Court for the District of Delaware, Jeld-Wen, Inc. v. Van Brunt, Adv. Proc. No. 07-51602 (Bankr. D. Del.