As we previewed last week, the U.S. Bankruptcy Court for the Southern District of New York recently handed General Motors (“New GM”) an enormous victory that may end up shielding the company from up to $10 billion in successor liability claims.

The United States bankruptcy judge overseeing the liquidation of MF Global Inc., approved the trustee’s proposal to pay  all unsecured general creditors $461 million. Once paid, this distribution would result in total distributions to unsecured general creditors of 72 percent of their approved claims.

The New York State Attorney General settled a lawsuit against Ernst & Young related to its involvement in the financial statement preparation of Lehman Brothers Holding, Inc. The NY AG had alleged that the auditing firm had countenanced Lehman’s inclusion of certain repurchase transactions as sales and not as financings, which permitted the firm to remove “tens of billions of dollars” of securities from its balance sheet. According to the NY AG, the repo transactions—known as “Repo 105”—“served no legitimate purpose.

The bankruptcy court yesterday handed General Motors (New GM) an enormous victory that may end up shielding the company from up to $10 billion in potential legal liabilities. In his 138-page ruling, Bankruptcy Judge Robert Gerber held that a 2009 bankruptcy order allowing the sale of the assets of “old” General Motors (Old GM) to New GM shielded New GM from death and injury claims tied to defective ignition switches in older cars.

Filing an involuntary bankruptcy petition is an alternative not often considered by creditors. However, faced with the possibility of having to write-off a claim, a creditor may choose to file an involuntary bankruptcy petition in order to put the debtor under the control of the Bankruptcy Code and the bankruptcy court. Such a move comes with risk, and a recent Eleventh Circuit Court of Appeals decision may expand that risk.

The trustee for the liquidation of MF Global Inc. is seeking permission from the bankruptcy judge overseeing the firm’s dissolution to make a distribution of US $461 million to unsecured general creditors. If approved, this distribution would result in total distributions to unsecured general creditors of 72 percent of their approved claims. To date, the trustee has distributed 100 percent of approved claims of MF Global’s customers (totaling US $6.7 billion), and 100 percent of approved secured, priority and administrative claims.

Events are happening quickly these days with Caesars Entertainment.  On January 13, holders of second lien notes issued by Caesars Entertainment Operating Company (“CEOC”) filed an involuntary chapter 11 petition against CEOC in the U.S. Bankruptcy Court for the District of Delaware.  Two days later, CEOC itself filed a voluntary chapter 11 petition in the U.S. Bankruptcy Court for the Northern District of Illinois, setting up a venue fight over the bankruptcy case.  And later that same day, the U.S.

Introduction

Put your lender’s hat on. Wouldn’t it be great if you could prevent your borrower from filing bankruptcy in the first place? Unfortunately for lenders, a recent decision demonstrates how hard it is to prevent bankruptcy filings.

On December 1, 2014, the U.S. House of Representatives passed the Financial Institution Bankruptcy Act of 2014(FIBA).  The legislation passed on a voice vote and is supported by the major Wall Street banks.