In the fifth opinion involving the repo liquidation saga of HomeBanc, the Third Circuit addressed several crucial issues involving the liquidation and valuation of repo collateral in bankruptcy. In re HomeBanc Mortg. Corp., 2019 WL 7161215 (3d Cir. Dec. 24, 2019).

Background

Introduction

Background

Following various disputes as to the scope of the collateral given to secured creditors, the debtors and certain of their noteholders jointly proposed a chapter 11. The plan included a rights offering that the consenting noteholders agreed to backstop. These consenting noteholders were granted the right to purchase significant equity of the reorganized debtors at a discount and receive significant premiums for their agreement to backstop the rights offering and support the plan.

The Bottom Line

In CMH Liquidating Trust v. National Union Fire Insurance Company of Pittsburgh, PA, Case No. 16-cv-14434 (E.D. Mich. 2019) (“CMH”), the District Court for the Eastern District of Michigan held that an insurance policy that was renewed post-petition was still an executory contract, and thus, a provision denying coverage for acts leading to bankruptcy was a prohibited ipso facto clause.

What Happened?

The Bottom Line

In In re PT Bakrie Telecom Tbk, Ch. 11 Case No. 18-10200 (SHL) (Bankr. S.D.N.Y. May 30, 2019), the Bankruptcy Court for the Southern District of New York denied a noteholder group’s request for summary judgment seeking denial of recognition of a foreign proceeding under Chapter 15 of the Bankruptcy Code because the debtor had sufficient property in the United States, the appointment of the foreign representative was effective and the Indonesian proceeding was a collective one.

What Happened?

The Bottom Line

In Gavin/Solmonese LLC, Liquidation Trustee for the Citadel Creditors’ Grantor Trust, successor to Citadel Watford City Disposal Partners, L.P., et al. v. Citadel Energy Partners, LLC, et al., Ch. 11 Case No. 15-11323; Adv. Proc. No. 17-50024 (Bankr. D. Del. May 2, 2019) (“Citadel”), the Bankruptcy Court for the District of Delaware held that creditors of insolvent limited partnerships and limited liability companies do not have standing to sue derivatively on behalf of the company under applicable state law.

Merit Management

In Mission Products Holdings, Inc. v. Tempnology, LLC, the U.S. Supreme Court resolved a question that vexed the lower courts and resulted in a circuit split: does the rejection by a debtor-licensor of a trademark license agreement terminate the licensee’s rights under the rejected license?

It is a well-established principle of bankruptcy law that claims generally crystallize as of the bankruptcy petition date. Of course, section 506(b) of the bankruptcy code allows over-secured, secured creditors to recover post-petition interest and costs, including reasonable legal fees, if their documentation provides them with the right to recover these costs. But what about unsecured creditors – are post-petition legal fees incurred by an unsecured creditor whose contract with the debtor provides for reimbursement of legal fees allowed or not?

Bankruptcy Rule 2004 allows the examination of any entity with respect to various topics, including conduct and financial condition of the debtor and any matter that may affect the administration of the estate. Does a subordination agreement that is silent on the use of Rule 2004 prevent the subordinated creditor from taking a Rule 2004 examination of the senior creditor? Yes, says an Illinois bankruptcy court.