The UK Court of Appeal has swept aside existing rules governing when administrators have to pay advance rents falling due before their appointment.
In what will be seen as a significant victory for landlords, the Court held on 24 February 2014 that it was not open for administrators to enjoy a rent free period simply because they were appointed just after a quarter day. The decision will have major implications for the planning and implementation of corporate insolvencies and looks set to transform the relationship between insolvency practitioners and the property industry.
Setoff provisions are commonly found in a variety of trading related agreements between hedge funds and their dealer counterparties. Last November, Judge Christopher Sontchi of the United States Bankruptcy Court for the District of Delaware held that “triangular setoff” is not enforceable in the context of a bankruptcy case.[1] “Triangular setoff” is a contractual right of setoff that permits one party (“Party One”) to net and set off contractual claims of Party One and its affiliated entities against another party (“Party Two”).
Landlords often ask for a rent deposit when they grant a new lease, or consent to an assignment, especially if the incoming tenant is of shaky covenant strength. This provides security against possible future default.
If a tenant becomes insolvent then this is exactly the sort of situation where a landlord would want to make use of a deposit. Where it is in the “commingling” form (i.e. paid to the landlord so that it becomes a debt in favour of the tenant) then that is unproblematic: no restrictions are imposed by the moratorium which arises on the tenant’s insolvency.
The U.S. Court of Appeals for the Third Circuit held on July 30, 2013, that a reorganized Chapter 11 debtor could reopen its closed case, enabling the debtor assignee to enforce a purchase option in a real property lease despite the lease’s “anti-assignment provisions.” In re Lazy Days’ RV Center Inc., 2013 WL 3886735, *5 (3d Cir. July 30, 2013).
The UK High Court today took a crucial step towards resolving the difficult issue of when administrators must pay rent.
Cramdown Plan Stays Suits Against Corporate Parent
The U.S. Court of Appeals for the Fifth Circuit held on March 1, 2013, that a bankruptcy court had not erred in applying a prime plus 1.75 percent interest rate to a secured lender’s $39 million claim under a "cramdown" plan of reorganization. Wells Fargo Bank N.A v. Texas Grand Prairie Hotel Realty, LLC (In the Matter of Texas Grand Prairie Hotel Realty, LLC), __ F.3d __, 2013 WL 776317 (5th Cir. Mar. 1, 2013).
The U.S. Court of Appeals for the Fifth Circuit held on Feb. 28, 2013, that a secured lender’s full credit bid for a Chapter 11 debtor’s assets at a bankruptcy court sale barred any later recovery from the debtor’s guarantors. In re Spillman Development Group, Ltd., ___ F.3d ___, 2013WL 757648 (5th Cir. 2/28/13). A “credit bid” allows a creditor to “offset its [undisputed] claim against the purchase price,” a right explicitly granted by Bankruptcy Code (“Code”) § 363(k). 3 Collier, Bankruptcy, ¶ 363.06[10], at 363-59 (16th rev. ed. 2010).
The U.S. Court of Appeals for the Seventh Circuit, on Feb. 14, 2013, held that an insider of a Chapter 11 partnership debtor cannot avoid the “competition rule” in a new-value reorganization plan. The debtor’s equity owner arranged for his wife, also an “insider,” to contribute new value to obtain the equity of the reorganized debtor. In re Castleton Plaza, LP, — F.3d –––, 2013 WL 537269 at *1 (7th Cir., Feb. 14, 2013).
The SIPC Trustee for Lehman Brothers Inc. ("LBI") and the Joint Administrator of Lehman Brothers International (Europe) ("LBIE") today announced an agreement in principle to resolve all claims, approximately $38 billion in the aggregate, between their respective entities.
The proposed settlement is subject to approval by the bankruptcy court in the United States and the English High Court. According to the LBI Trustee, if approved, "the agreement sets the stage for distributions that will provide 100 percent recovery of customer property."