Changes may be coming to the Bankruptcy Code’s safe harbor provisions.[1] In 2012 the American Bankruptcy Institute established a Commission to Study the Reform of Chapter 11 (the “ABI Commission”), composed of many well-respected restructuring practitioners, including two of the original drafters of the Bankruptcy Code, whose advice holds great weight in the restructuring community.
Debt exchanges have long been utilized by distressed companies to address liquidity concerns and to take advantage of beneficial market conditions. A company saddled with burdensome debt obligations, for example, may seek to exchange existing notes for new notes with the same outstanding principal but with borrower-favorable terms, like delayed payment or extended maturation dates (a "Face Value Exchange"). Or the company might seek to exchange existing notes for new notes with a lower face amount, motivated by discounted trading values for the existing notes (a "Fair Value Exchange").
A bankruptcy judge in the Southern District of New York recently held that section 546(e) of the Bankruptcy Code does not prevent a debtor’s creditors from bringing state-law fraudulent conveyance actions that challenge a leveraged buyout of the debtor. Weisfelner v. Fund 1 (In re Lyondell Chem. Co.), No. 10-4609 (REG), --- B.R. ----, 2014 WL 118036 (Bankr. S.D.N.Y. Jan. 14, 2014).
TheLehman Brothers bankruptcy court has determined that the contractually specified methodology for conducting the liquidation of a swap agreement is protected by the safe harbor provisions of the bankruptcy, even if the selected methodology would be more favorable to the non-defaulting counterparty than the liquidation methodology that would apply absent the bankruptcy.See Michigan State Housing Dev. Auth. v. Lehman Bros. Deriv. Prods. Inc. (In re Lehman Bros. Holdings Inc.), No. 08-13555, ---B.R.
A Western District of New York bankruptcy court has held that the safe harbor provisions of section 546(e) of the Bankruptcy Code apply to leveraged buy-outs of privately held securities. See Cyganowski v. Lapides (In re Batavia Nursing Home, LLC), No. 12-1145 (Bankr. W.D.N.Y. July 29, 2013).
On June 25, 2013, the Bankruptcy Court for the Southern District of New York (the “Court”) issued a memorandum decision in the Lehman Brothers SIPA proceeding1 holding that claims asserted by certain repurchase agreement (“repo”) counterparties (the “Representative Claimants”) did not qualify for treatment as customer claims under SIPA.
Few courts have construed the meaning of “repurchase agreement” as used in the Bankruptcy Code, so the recent HomeBanc1 case out of the United States Bankruptcy Court for the District of Delaware is a must-read for “repo” counterparties. The principal issue in HomeBanc was whether several zero purchase price repo transactions under the parties’ contract for the sale and repurchase of mortgage-backed securities fell within the definition of a “repurchase agreement” in Section 101(47) of the Bankruptcy Code.
One of the primary fights underlying assumption of an unexpired lease or executory contract has long been over whether any debtor breaches under the agreement are “curable.” Before the 2005 amendments to the Bankruptcy Code, courts were split over whether historic nonmonetary breaches (such as a failure to maintain cash reserves or prescribed hours of operation) undermined a debtor’s ability to assume the lease or contract.