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Second Liens Beware Delaware Bankruptcy Court Finds De Facto Claim Subordination Under Intercreditor Agreement

Executive Summary

On December 27, 2018, the United States Bankruptcy Court for the District of Delaware issued an opinion in In re La Paloma Generating Co., Case No. 16-12700 (Bankr. D. Del. Dec. 27, 2018) [Docket No. 1274], that should raise substantial concerns for junior secured creditors.

In particular, the La Paloma opinion determined that:

USA, Company & Commercial, Insolvency & Restructuring, Litigation, Weil Gotshal & Manges LLP, United States bankruptcy court
Unauthorized UCC filings: a cautionary tale in the absence of requisite authority to file, a UCC termination statement is ineffective to bring a perfected security interest to an end

A recent decision by the United States Bankruptcy Court for the Southern District of New York1 found that a UCC-3 termination statement filed on behalf of a secured creditor was not effective because it lacked the proper authorization.

USA, New York, Insolvency & Restructuring, Litigation, Milbank LLP, Debtor, Uniform Commercial Code (USA), United States bankruptcy court