It has long been the law that creditors are rarely entitled to contractually prohibit a debtor from filing for bankruptcy, whether such restriction is contained in the debt instruments or in the corporate governance documents. In contrast, governance provisions which condition a bankruptcy filing on the vote or consent of certain equity holders that are unaffiliated with any creditor are frequently enforced. Many equity sponsors, for example, wear two hats: they are both shareholders and lenders to their portfolio companies.

In Nortel Networks, Inc., Case No. 09-0138(KG), Doc. No. 18001 (March 8, 2017), the Delaware Bankruptcy Court ruled on the objections of two noteholders who asked the Court to disallow more than $4.4 million of the $8.1 million of the fees sought by counsel to their indenture trustee. Given the detailed rulings announced by the Court, the decision may establish a number of guidelines by which future fee requests made by an indenture trustee’s professionals will be measured.

Matters Handled by the UCC

“The question that he frames in all but words

Is what to make of a diminished thing.”

                             Robert Frost, “The Oven Bird”

In a significant expansion of the potential risk for distressed claims traders, the Delaware bankruptcy court has recently ruled¹ that traders who engage in insider trading may have their claims subordinated to equity, and that traders who amass claims sufficient to block a plan of reorganization owe fiduciary duties to all other creditors and shareholders during plan negotiations.

In today’s turbulent economic climate, it is vital for creditors and debtors to understand the precise boundaries of their rights and duties when an enterprise becomes insolvent. Directors, officers and managers must acknowledge those to whom they owe fiduciary duties and fulfill those duties at the risk of personal liability, while creditors evaluate their potential remedies against misbehaving insiders to collect on defaulted obligations.

The recent case of In re Tousa, Inc. (Official Committee of Unsecured Creditors of Tousa, Inc., v. Citicorp North America, Inc., Adv. Pro. No. 08-1435-JKO (Bankr. S.D. Fla., October 13, 2009)) has attracted considerable attention – and dread – in the banking and legal communities.

Anyone who obtains title insurance, whether as an owner or a lender, should be aware of a recent abrupt and significant change in title insurance practices across the country. Title companies have recently stated that they will no longer delete creditors’ rights exclusions from, or add affirmative creditors’ rights coverage as an endorsement to, any of their issued title policies.