In a 113-page decision (click here to read decision) that is sure to be applauded by lenders and bond traders alike, Judge Alan S. Gold of the United States District Court for the Southern District of Florida, in overturning a Bankruptcy Court opinion that has caused lenders much concern, has issued a stern ruling that provides a bulwark against efforts by creditors and trustees in bankruptcy to expand the scope of the fraudulent conveyance provisions under the Bankruptcy Code.

The past eighteen months have seen a marked increase in the use of the Company Voluntary Arrangement (“CVA”) by retailers to reduce their lease liabilities and win the release of onerous parent company guarantees, with several high street names going through the process. Although this practice received cautious support from landlords, real concern continues to be voiced over the practice of “guarantee stripping”.

In 1999 the Third Circuit Court of Appeals rendered its decision in Calpine Corp. v. O’Brien Environmental Energy, Inc. (In re O’Brien Environmental Energy, Inc.), 181 F.2d 527, denying Calpine Corporation’s request for the payment of a break-up fee after Calpine lost its effort to acquire the assets of O’Brien Environmental Energy out of bankruptcy.

NEW RULES ON PRE-ADMINISTRATION COSTS

Insolvency Practitioners have been eagerly awaiting the implementation on 6 April 2010 of the Insolvency (Amendment) Rules 2010 (“New Rules”). In addition to the many modernising changes made by the New Rules is the long awaited inclusion of what was believed to be a statutory entitlement to recover pre-appointment costs such as in negotiating a pre-pack. as an expense of the administration (New Rule 2.67(1)(h)).

The Second Circuit Court of Appeals recently issued its decision on a question of first impression before the court: whether section 502(d) of the Bankruptcy Code applies to administrative claims arising under section 503(b) of the Bankruptcy Code. See, generally, ASM Capital, L.P. v. Ames Dept. Stores, Inc. (In re Ames Dept. Stores, Inc.), 582 F.3d 422 (2d Cir. 2009).

During the bankruptcy cycle following the recession of 2001, numerous debtors – notably airlines such as US Airways and United Air Lines, Inc. – undertook “distress terminations” of their ERISA-qualified defined benefit pension plans, which are insured by the Pension Benefit Guaranty Corporation (PBGC). The PBGC found itself holding large general unsecured claims arising from significant underfunding of pension plans insured by the PBGC as a result of these terminations. Efforts by the PBGC to obtain either administrative priority or secured status for these claims invariably failed.1