On March 22, the United States Court of Appeals for the Third Circuit issued a decision that could significantly impact the rights of secured creditors to credit bid in connection with Chapter 11 asset sales under a plan of reorganization.
Lehman Brothers Holdings Inc. (LBHI) and its affiliated U.S. chapter 11 debtors (the “Debtors”) filed a joint plan with the Bankruptcy Court on March 15, the last day on which the Debtors who filed petitions on September 15, 2008, had the exclusive right to file a plan. As a result of the filing, the Debtors have an additional 60 days during which no other party may file a plan.
A recent court ruling by U.S. Bankruptcy Judge Burton Lifland clarifies the process for determining how much money investors may be entitled to receive in connection with the Securities Investor Protection Corporation (SIPC) proceeding involving the Madoff Ponzi scheme. The new ruling specifically related to whether investors could receive amounts equaling the totals appearing on their last account statements. The judge sided with the SIPC-appointed trustee, Irving Picard, who argued that investors could claim only the amount they first invested with Madoff (minus any withdrawals).
Beneficiaries of a Ponzi scheme who were subsequently found liable to cheated investors under state securities laws could not discharge this liability under Chapter 7 of the Bankruptcy Code, the U.S. District Court for the Western District of Oklahoma ruled.
The U.S. Bankruptcy Court for the Southern District of Texas issued a stern warning to professional services providers regarding “tail fees,” establishing a presumption of unreasonableness against contract terms requiring fees not attached to tangible, identifiable and material benefits to the debtor’s estate.
On January 25, Judge Peck of the U.S. Bankruptcy Court for the Southern District of New York entered a declaratory judgment in favor of Lehman Brothers Special Financing Inc. (LBSF) in a case examining a collateralized debt obligation (CDO) transaction and concerning the effect of event of default provisions on the payment priorities of LBSF as swap counterparty under certain swap agreements and the holders of certain credit-linked synthetic portfolio notes. The payment waterfalls (Priority Provisions) of most CDO transactions give priority to swap counterparties over noteholders.
The Commodity Futures Trading Commission is proposing to amend its Bankruptcy Rules to permit the trustee for a bankrupt futures commission merchant to continue to operate the business of the commodity broker in the ordinary course for a limited period of time.
The Federal Deposit Insurance Corporation (FDIC) announced that Residential Credit Solutions was the winning bidder in a pilot sale of receivership assets conducted to test the funding mechanism for the Legacy Loans Program. The FDIC, as a receiver of Franklin Bank, SSB, owns a portfolio of residential mortgage loans with an unpaid principal balance of approximately $1.3 billion, which the FDIC will convey to a limited liability company. Residential Credit Solutions will pay $64,215,000 in cash for a 50% stake in the limited liability company using 6-to-1 leverage.
On August 11, the Honorable Allan L. Gropper issued an opinion of the U.S. Bankruptcy Court for the Southern District of New York denying five motions to dismiss certain Chapter 11 bankruptcy cases of several property-specific special purpose subsidiaries (SPE Debtors), including a number of issuers of commercial mortgage-backed securities (CMBS), that are owned by mall operator General Growth Properties, Inc.
On August 11, the U.S. Bankruptcy Court for the Southern District of New York denied five motions to dismiss certain Chapter 11 bankruptcy cases filed by debtors, including a number of issuers of commercial mortgage-backed securities (CMBS), that are owned by mall operator General Growth Properties, Inc. (GGP). The movants, including special servicers of the CMBS issued by GGP, based their dismissal motions primarily on a claim that the debtor’s cases were filed in bad faith.