Executive Summary

Before ingesting too much holiday cheer, we encourage you to consider a recent opinion from the United States Court of Appeals for the Second Circuit.

Weil Bankruptcy Blog connoisseurs will recall that, in May 2019, we wrote on the Southern District of New York’s decision in In re Tribune Co. Fraudulent Conveyance Litigation, Case No. 12-2652, 2019 WL 1771786 (S.D.N.Y. April 23, 2019) (Cote, J.) (“Tribune I”).

When it comes to offsets, bankruptcy law provides for two distinct remedies: (1) setoff and (2) recoupment.

Setoff allows a creditor to reduce the amount of prepetition debt it owes a debtor with a corresponding reduction of that creditor’s prepetition claim against the debtor. The remedy of setoff is subject to the automatic stay, as well as various conditions under § 553 of the Bankruptcy Code — including that it does not apply if the debts arise on opposite sides of the date on which the debtor’s case was commenced.

A recent chapter 15 decision by Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) suggests that third-party releases susceptible to challenge or rejection in chapter 11 proceedings may be recognized and enforced under chapter 15. This decision provides companies with cross-border connections a path to achieve approval of non-consensual third-party guarantor releases in the U.S.

Background

A recent chapter 15 decision by Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) suggests that third-party releases susceptible to challenge or rejection in chapter 11 proceedings may be recognized and enforced under chapter 15. This decision provides companies with cross-border connections a path to achieve approval of non-consensual third-party guarantor releases in the U.S.

Background

On June 30, 2016, Congress passed and President Obama signed into law a new piece of federal legislation that will govern the restructuring of U.S. territories: Public Law No: 114-187. Although not limited to the Commonwealth of Puerto Rico, enactment of the new law, entitled the Puerto Rico Oversight, Management, and Economic Stability Act or “PROMESA,” represents a bipartisan achievement in the context of a worsening fiscal crisis in Puerto Rico.

In a recent decision, the United States District Court for the Southern District of Texas affirmed the bankruptcy court’s rejection of the cost methodology to value the right to use common amenities in a condominium development and, in the process, bolstered the notion that bankruptcy courts have discretion in determining what valuation methodologies are appropriate under the facts and circumstances of a particular case.

The United States Court of Appeals for the Seventh Circuit recently held that numerous forbearances by a lender that allowed a single asset real estate borrower to stave off bankruptcy for four years provided value in the context of a constructive fraudulent transfer action. 1756 W. Lake St. LLC v. Am. Chartered Bank (In re 1756 W. Lake St. LLC), Case No. 14-1869 (7th Cir.

In a recent 

Undersecured creditors may breathe a little easier.  In a recent decision, the United States Bankruptcy Court for the Northern District of Illinois denied the debtors’ request to use an undersecured creditor’s cash collateral, in the form of postpetition rents, to pay estate professional fees, holding that the undersecured creditor was not adequately protected even though the value of its collateral was stable and possibly increasing.