The U.S. District Court for the Southern District of New York, on May 4, 2015, affirmed U.S. Bankruptcy Judge Robert D. Drain’s decision confirming the reorganization plan for Momentive Performance Materials Inc. and its affiliated debtors.1 The Bankruptcy Court’s decision was controversial because it forced the debtors’ senior secured creditors to accept new secured notes bearing interest at below- market rates.
InGrayson Consulting, Inc. v. Wachovia Securities, LLC (In re Derivium Capital LLC), 716 F.3d 355 (4th Cir. 2013), the U.S. Court of Appeals for the Fourth Circuit examined whether certain securities transferred and payments made during the course of a Ponzi scheme could be avoided as fraudulent transfers under sections 544 and 548 of the Bankruptcy Code. The court upheld a judgment denying avoidance of pre-bankruptcy transfers of securities because the debtor did not have an “interest” in the securities at the time of the transfers.
On Sept. 12, 2013, the United States Court of Appeals for the Second Circuit affirmed the bankruptcy court’s decision to deny payment of a make-whole premium (the “Make-Whole Amount”) to bondholders under three separate indentures (the “Indentures”) based on the plain language of those agreements. U.S. Bank Trust Nat’l Ass’n v. AMR Corp. et al. (In re AMR Corp.), __ F.3d __, 2013 WL 4840474 (2d Cir. Sept. 12, 2013) (“In re AMR Corp. II”).
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 United States Court of Appeals for the Eighth Circuit held on Aug. 3, 2012, that equitable considerations could not prevent a creditor's recouping amounts owed to it by a chapter 7 debtor. Terry v. Standard Ins. Co. (In re Terry), 2012 WL 3139364, *4 (8th Cir. Aug. 3, 2012). Reversing the bankruptcy court and the Bankruptcy Appellate Panel ("BAP"), the Eighth Circuit explained that "once a party meets the same-transaction test . . . a court should not impose an additional 'balancing of the equities' requirement" on the doctrine of recoupment. Id.
On January 10, 2012, a Florida bankruptcy court ruled in In re Pearlman, 462 B.R. 849 (Bankr. M.D. Fla. 2012), that substantive consolidation is purely a bankruptcy remedy and that it accordingly did not have the power to consolidate the estate of a debtor in bankruptcy with the assets and affairs of a nondebtor. In so ruling, the court staked out a position on a contentious issue that has created a widening rift among bankruptcy and appellate courts regarding the scope of a bankruptcy court’s jurisdiction over nondebtor entities.
The Seventh Circuit affirmed a district court’s ruling that a debtor-in-possession (“DIP”) lender had breached its financing agreement, barring its claim for commitment and funding fees from the DIP. Arlington LF, LLC v. Arlington Hospitality, Inc., No. 09-3560, 2011 WL 727981, *9 (7th Cir. March 3, 2011), aff’g No. 08 C 5098, 2011 WL 3055350 (N.D. Ill. Sept. 18, 2009). Although the DIP itself had also breached the agreement, that breach was not, in the court’s view, effective until after the lender had already “walked away.” Id. at *6.
In a recent decision, the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) granted protection over the U.S. assets of a Cayman Islands exempted company in liquidation. See Revised Order Recognizing Foreign Proceeding (the “Order”), In re Saad Investments Finance Company (No.5) Limited (“SIFCO5”), Case No. 09-13985 (KG) (Bankr. D. Del. Dec. 17, 2009) (Docket No. 47). The company, SIFCO5, is subject to official liquidation proceedings in the Cayman Islands, which the Bankruptcy Court found was eligible for relief under chapter 15 of the U.S.