U.S. bankruptcy law permits debtors-in-possession and trustees to sell assets free and clear of claims, liens and other interests. But a federal judge in New York ruled recently that a purchaser does not necessarily buy free and clear when a product manufactured pre-bankruptcy causes injury after a sale closes. Morgan Olson L.L.C. v. Frederico (In re Grumman Olson Indus., Inc.), No. 11 Civ. 2291, 2012 U.S. Dist. LEXIS 44314 (S.D.N.Y. Mar. 29, 2012) (JPO). In this situation, the purchaser can remain liable for injuries caused by the asset purchased from the debtor.
LEHMAN BANKRUPTCY
In re: Lehman Brothers Holdings, Inc., et al., No. 08-13555
On March 6, 2012, Lehman Brothers Holdings Inc. and its affiliated debtors announced that their Modified Third Amended Joint Chapter 11 Plan, which had been confirmed by the United States Bankruptcy Court for the Southern District of New York on December 6, 2011, had become effective. Distributions under the Plan will begin on April 17, 2012.
Earlier today AMR Corporation, its subsidiary American Airlines, Inc., and 18 other affiliates ("Debtors") filed petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York in Manhattan.1 The case was assigned to Bankruptcy Judge Sean H. Lane. The Debtors have asked the Court to consolidate all 20 cases for procedural purposes under the captionIn re: AMR Corporation, Case No. 11-15463.
On August 30, 2011, the United States Bankruptcy Court for the Southern District of New York approved the Disclosure Statement for the Revised Second Amended Joint Chapter 11 Plan of Lehman Brothers Holdings, Inc. and its affiliated debtors (collectively, the "Debtors"). The Bankruptcy Court's approval of the Disclosure Statement will permit the Debtors to begin soliciting votes to accept the Plan and is a significant step forward in the Debtors' efforts to achieve resolution of the nation's largest-ever bankruptcy.
A popular line of thinking among bankruptcy practitioners and commentators holds that substantive consolidation – the combining of assets and liabilities of a debtor and another debtor or non-debtor entity to satisfy creditor claims against both entities ratably from the resulting pool – is an equitable remedy of judicial invention with no specific foundation in the Bankruptcy Code.
Seeking to have an independent examiner investigate a debtor or its management can be a powerful tool available to creditors and other interested parties in a bankruptcy case. Typically, a party might request that an examiner be appointed if the debtor or its management is suspected of fraud or other misconduct. The low cost associated with making the request, together with recent positive outcomes for requesting creditors, may help to increasingly popularize the use of examiner requests by parties seeking leverage in bankruptcy plan negotiations.
In the fourth quarter of 2008, global credit markets were virtually frozen, leading many distressed businesses and their constituents to take measures to avoid bankruptcy filings at almost all costs. Without access to debtor-in-possession (DIP) financing, bankruptcy most often results in liquidation – and with lenders reluctant to provide new money, even in exchange for superpriority and/or priming liens, total collapse became an increasingly common result.
An opinion issued earlier this year by the Delaware Bankruptcy Court in In re SemCrude, L.P., et al. (Bankr. Del., No. 08-11525; January 9, 2009) may end much of the practice of so-called “triangular setoffs” by creditors in bankruptcy cases. The Court in SemCrude found that creditors violate section 553 of the Bankruptcy Code by setting off amounts among multiple debtors, even when exercising contractual assignment rights. This ruling is likely to have far-reaching impact given the dearth of case law on this fairly common contractual provision.