On July 6, the FDIC adopted a final rule addressing the rights and powers of the FDIC as a receiver of a nonviable systemic financial company under the orderly liquidation provisions of Title II of the Dodd-Frank Act.  The rule addresses: (i) recoupment of compensation from senior executives and directors as well as the receiver's power to avoid fraudulent and preferential transfers; (ii) the priority of claims; and (iii) the receivership administrative claims process as well as secured claims procedures.  The lin

On January 25, 2010, United States Bankruptcy Court Judge James M. Peck issued a decision that limited the ability of parties to swap transactions to enforce certain of their contractual rights against a counterparty that has filed for bankruptcy. See Lehman Brothers Special Financing Inc. v. BNY Corporate Trustee Services Ltd.1 (the “BNY Decision”).

The International Swaps and Derivatives Association, Inc. (“ISDA”) is preparing forms of amendment to its boilerplate master agreements in connection with market practice relating to the suspension of payments by a non-defaulting party. ISDA is also considering a protocol to implement the amendments into existing agreements on a multilateral basis.  

On April 27, 2011, the United States Supreme Court approved certain amendments to Bankruptcy Rule 2019 requiring disclosures by certain creditors and equity holders in Chapter 11 cases. We expect that amended Rule 20191 (“Amended Rule 2019”) will take effect as a matter of law on December 1, 2011 unless in the interim Congress enacts legislation to reject, modify, or defer the rules, which we view as unlikely.

On April 25, 2011, as widely expected, a group of Lehman creditors holding claims arising from terminated derivatives transactions filed a competing plan of reorganization and related disclosure statement in the Debtors' chapter 11 cases. As a result of the new filing, there are now three competing plans – (1) the Debtors’ Plan, (2) the Ad Hoc Group’s Plan (filed by a group of bondholder creditors) and (3) the Non-Consolidation Plan (filed by the derivative claimants) - in the Lehman bankruptcy proceedings.

On April 18, the FDIC released a report examining how it could have structured an orderly resolution of Lehman Brothers Holdings Inc. using the orderly liquidation authority under Title II of theDodd-Frank Act. FDIC Release.

On April 21, the Fed issued a request for public information and comment on two bankruptcy-related studies required under the Dodd-Frank Act. One study will focus on the resolution of financial companies in Chapter 7 or Chapter 11 bankruptcy, and the other will focus on international coordination of the resolution of systemically important financial companies under the Bankruptcy Code and applicable foreign law. Comments must be submitted within 30 days after publication in the Federal Register.

On March 16, 2011, plaintiffs in ABN Amro Bank, et al. v. MBIA Inc., et al. filed their opening brief in the New York Court of Appeals. Plaintiffs are appealing the 3-to-2 decision of an intermediate appellate court dismissing their suit challenging the "fraudulent restructuring" of monoline insurer MBIA. The case, brought by a group of banks that are beneficiaries of MBIA's structured finance-related policies, claims that MBIA transferred $5 billion in assets from MBIA Insurance Corporation (a failing subsidiary) to MBIA Illinois (a stronger subsidiary).

On February 28, Fitch addressed questions that have arisen related to the orderly liquidation authority under the Dodd-Frank Act and the securitization safe harbor. Fitch stated that clarifications from the FDIC provide comfort that the rights of investors can be determined at the outset of a securitization and that the ratings assigned to the transaction can be de-linked from those of the sponsoring entity.

On February 16, 2011, the Third Circuit affirmed a Delaware bankruptcy court's order determining the value of mortgage loans in the context of a 2006 repurchase agreement. Buyer Calyon argued that the mortgage loan portfolio sold to it by American Home Mortgage had a market price of only $670 million, as compared to its $1.15 billion contractual repurchase price, and that American Home Mortgage was required to pay Calyon the $480 million difference under a repo agreement.