Chapter 11 creditors’ committees and debtors continue to challenge lenders’ prepayment premiums, commitment fees and post-bankruptcy interest claims in reorganization cases. Nevertheless, courts regularly reject these challenges in well-reasoned decisions.

The U.S. Court of Appeals for the Seventh Circuit held on July 9 that the nondebtor licensee of a rejected trademark license may continue to use the trademark (Sunbeam Products, Inc. v. Chicago American Mfg., LLC, ___ F.3d ___, 2012 WL 2687939 (7th Cir. July 9, 2012) (Easterbrook, Ch. J.)). The court's clear, concise and no-nonsense opinion explained that Bankruptcy Code ("Code") § 365(g) deems a trustee's rejection to be a "breach" of the contract, enabling "the other party's rights [to] remain in place." Id., at *3.

Chapter 11 creditors' committees and debtors continue to challenge lenders' prepayment premiums, commitment fees and post-bankruptcy interest claims in reorganization cases. Nevertheless, courts regularly reject these challenges in well-reasoned decisions. This Alert focuses on two of these recent decisions:In re Fleetwood Enterprises, Inc., 2012 WL 2017952 (9th Cir.

The United States Court of Appeals for the Eleventh Circuit, on May 15, 2012, reversed a district court's February 2011 decision that lenders were not liable on a fraudulent transfer claim. In re TOUSA, Inc., ___ F.3d ___, 2012 U.S. App. LEXIS 9796 (11th Cir. 5/15/12).^[1] It rejected the district court's finding that corporate subsidiaries had received "reasonably equivalent value" when they encumbered their assets to secure a loan made to them and their corporate parent.

In the current economic climate, brokers will find the decision of the High Court in Euroption Strategic Fund Limited v Skandinaviska Enskilda Banker AB[2012] EWHC 584 (Comm) of considerable interest, since it considers the duties of a broker who is conducting a close out and liquidating the position of a client who is in a state of default, in this case for failure to meet margin requirements.   

The Court ruled that:

The Supreme Court handed down its judgment in relation to the client money application in the matter of Lehman Brothers International (Europe) (LBIE). The judgment has a number of implications for firms who hold client money, and for firms who hold money with banks and other firms as clients themselves. The complicated and controversial nature of the appeal is reflected in the sharply opposing opinions of the Lords in relation to two of the three issues considered.

The U.S. Court of Appeals for the Seventh Circuit affirmed a bankruptcy court’s dismissal of a single asset real estate case on Jan. 19, 2012, reasoning that the debtor’s proposed substitute collateral “was not the indubitable equivalent of the [undersecured lender’s] mortgage.”In re River East Plaza, LLC, 2012 WL 169760, *2 (7th Cir. Jan. 19, 2012) (Posner, J.). In the court’s words, the debtor “wanted [the lender] out of there and decided to seek confirmation of a [reorganization] plan . . .

The U.S. Court of Appeals for the Second Circuit, on Dec. 2, 2011, ruled in favor of SRZ client Alfa, S.A.B. de C.V., denying Enron’s petition for rehearing in Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., 651 F.3d 329 (2d Cir. 2011). The court had previously ruled against Enron more than five months ago, holding that its redemptions of commercial paper were “settlement payments” and thus not voidable as preferential or fraudulent transfers under Bankruptcy Code § 546(e), one of the code’s so-called “safe harbor” provisions.

The U.S. Court of Appeals for the Fifth Circuit, on Aug. 16, 2011, affirmed the lower court’s decision authorizing reimbursement of expenses to qualified bidders for a reorganization debtor’s assets. In re Asarco, LLC, 2011 BL 213002 (5th Cir. Aug. 16, 2011). In the court’s view, the debtor provided “a compelling and sound business justification for the reimbursement authority.” Id. at *12.

Facts

In a decision likely to affect thousands of Madoff investors, the Second Circuit Court of Appeals on Aug. 16, 2011 unanimously upheld the method used by the liquidating trustee for Bernard L.