When creditors succeed in obtaining an order for relief in an involuntary Chapter 11 case and the appointment of a Chapter 11 trustee, who controls the appeals for those orders? According to an April 28, 2011 order of the U.S. District Court for the District of Nevada, the correct answer is the Chapter 11 trustee.

The judgment in the case of Belmont Park Investments Pty Limited v BNY Corporate Trustee Services Limited and Lehman Brothers Special Financing Inc (UKSC 2009/0222), which began to be heard by the UK Supreme Court on March 1, 2011,1 was handed down on July 27, 2011. The case concerns the enforceability of so-called “flip clauses,” which provide that payment obligations owed to different creditors, in this case the swap counterparty and the noteholders, “flip” in priority following a counterparty bankruptcy.

A recent decision in the U.S. Bankruptcy Court for the Southern District of Florida, In re Tousa,[1] has received widespread attention for its near wholesale rejection of insolvency “savings clauses,” and the resulting order requiring lenders to disgorge hundreds of millions of dollars. The decision raises numerous practical problems for participants in the secondary loan and derivatives markets, and more generally for commercial lenders and borrowers.

Background