A recent case out of the Southern District of New York, Citibank, NA, London Branch v. Norske Skogindustrier ASA(S.D.N.Y. March 8, 2016), once again illustrates the difficulty of obtaining injunctive relief against prospective indenture violations of a financially troubled issuer.

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Channel 1 – Thorpe Insulation Addresses Insurer Standing to Object to Plan and Assignability of Insurance Contracts to Plan Trusts

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Last month, District Court Judge Shira A. Scheindlin of the Southern District of New York affirmed a bankruptcy court ruling which held that the environmental cleanup obligations of debtor Mark IV Industries, Inc. were not discharged in bankruptcy.2 Given the current legal landscape, Mark IV may make the likelihood of discharging environmental claims even more difficult, potentially undermining chapter 11 as an optimal alternative for companies saddled with environmental liabilities.

When a company saddled with potential environmental liabilities seeks bankruptcy protection, the goals of Chapter 11—giving the reorganized debtor a “fresh start” and fairly treating similarly situated creditors—can conflict with the goals of environmental laws, such as ensuring that the “polluter pays.” Courts have long struggled to reconcile this tension.

On August 9, 2006, Judge Burton R. Lifland of the United States Bankruptcy Court for the Southern District of New York entered a Final Order Establishing Procedures for Trading in Claims and Equity Securities of Dana Corporation (the “Dana NOL Trading Order”). The Dana NOL Trading Order is materially different from NOL trading orders that have been approved by other bankruptcy courts and, from the perspective of investors in claims and distressed securities, represents a material improvement.

Treatment of NOLs in Business Reorganizations