The United States Bankruptcy Court for the District of Delaware has held that policy proceeds were not part of the insured entity’s bankruptcy estate because previous entity claims were dismissed with prejudice, it was highly speculative that the bankruptcy trustee would approve indemnification of directors and officers and the policy’s priority of payment provision provided that entity coverage was only available after payment of proceeds for direct coverage to insured persons. In re Downey Fin. Corp., 428 B.R. 595 (D. Del. Bankr. May 7, 2010).
The District Court for the Northern District of Ohio recently clarified the applicable requirements for post-petition severance payments to a debtor’s former officers. In the case of In re: Forum Health, et al.1, the debtor sought authorization from the Court to make a severance payment in the amount of $18,126.00 to its former Chief Executive Officer. The Trustee objected, asserting that the debtor’s motion was not based on a program that was generally applicable to all full-time employees as required by 11 U.S.C. § 503(c)(2)(A).
A recent defeat by a student-loan creditor could turn out to be a victory for the industry overall.
On March 23, 2010, the United States Supreme Court decided an important case concerning a student-loan creditor’s motion to void a bankruptcy court’s judgment.1 The creditor brought this motion after initiating collection efforts and in response to the debtor’s request to cease and desist those efforts.
The Bankruptcy Appellate Panel for the Sixth Circuit has issued an opinion protecting and preserving a bank’s security interest in funds in the debtor’s bank account notwithstanding the fact that the bank released those funds to the trustee. In re Cumberland Molded Products, LLC, No. 09-8049 (6th Cir. B.A.P. June 23, 2010).
During the current economic downturn, a number of financially distressed franchisees either have filed or may file for bankruptcy protection to restructure their financial obligations. As a result, franchisors should familiarize themselves with some bankruptcy basics before they are confronted with the situation.
What Happens If One of Our Franchisees Declares Bankruptcy?
Under BAPCPA, enacted in 2005, a Bankruptcy Court may not approve a Chapter 13 plan which does not provide for the payment of all unsecured claims in full if the plan does not devote all of the debtor’s projected disposable income over the life of the plan to repayment of the unsecured creditors.
In a decision not designated for publication, the United States District Court for the Northern District of California, applying California law, has held that an insurer's declaratory judgment complaint for rescission effectuated the rescission of the policy and that the subsequent coverage litigation confirmed the validity of the rescission. In re Sonic Blue Inc., 2010 WL 2034798 (N.D. Cal. May 19, 2010).
The United States Court of Appeals for the Third Circuit, applying New York law, has held that an inadequate consideration exclusion unambiguously bars coverage for a lawsuit arising out of a debt restructuring transaction. Delta Financial Corp. v. Westchester Surplus Ins. Co. (In re Delta Financial Corp.), 2010 WL 1784054 (3d Cir. May 5, 2010).
A recent judgment for partial dismissal by the United States District Court for the Middle District of Tennessee reinforces that a bank, when serving as a depository of fiduciary funds, may be shielded from liability for the fiduciary’s misconduct by the powerful protections of Tennessee’s Uniform Fiduciaries Act (the “UFA”).
The Third Circuit recently held that a bankruptcy court may confirm a Chapter 11 plan that includes a sale of assets in which secured creditors are not permitted to “credit bid” for the assets. In re Philadelphia Newspapers, LLC, 599 F.3d 298 (3d Cir. 2010). In that case, the debtors in possession, companies that own and operate the Philadelphia Inquirer and Philadelphia Daily News, moved the bankruptcy court to approve bid procedures for an auction of the debtors’ assets. Id. at 302.