Introduction

There have been a number of stories about how Ambac filed for Chapter 11 on November 8. However, there’s Ambac and then there’s Ambac and then there’s Ambac. If that all sounds the same to you, we are actually referring to three different Ambacs and the purpose of this blog is to help clear up the market confusion. First there is the Ambac that filed for Chapter 11 on November 8, which is Ambac Financial Group Inc. (AFG). This must mean that the bankruptcy trigger events in the contracts of all of Ambac’s insured counterparties were triggered by the bankruptcy filing, right?

In CML V, LLC v Bax, the Court of Chancery held that a creditor of JetDirect Aviation Holdings, LLC, a Delaware limited liability company ("JetDirect"), did not have derivative standing to assert breach of fiduciary duty claims against the board of managers of the insolvent JetDirect. The creditors would have had standing if JetDirect were a Delaware corporation, but the Court found that the Delaware LLC Act does not allow an LLC’s creditors to bring derivative claims when a Delaware LLC is insolvent (or at any other time).

Last Thursday, a Delaware Bankruptcy Court disqualified two law firms from representing an Official Committee of Unsecured Creditors based on their conduct in soliciting proxies from creditors who were not existing firm clients. In re Universal Building Products, No. 10-12453 (Bankr. D. Del. Nov. 4, 2010), involved an extreme fact pattern but it may nonetheless have a substantial effect not only on the selection of professionals for future Committees but also on the appointment of creditors to Committees, at least in Delaware.

Most polls, political pundits, and crystal balls are predicting a larger crowd on the Republican side of the aisle after the midterm elections, potentially giving them a majority in the House and tightening the margin in the Senate. The natural question that follows is what will happen to Dodd-Frank if the composition of Congress changes significantly? Is it possible that with a Republican majority the House may seek to repeal one of the most controversial pieces of legislation enacted by the Obama administration?

Straining under a debt burden in excess of $1 billion, TerreStar Networks filed a petition for Chapter 11 protection with a New York bankruptcy court on Tuesday. Known formerly as Motient Corp., TerreStar is in the midst of deploying a hybrid terrestrial/mobile satellite network that would serve rural and other hard-to-reach areas in the U.S.

When we last left off, Judge Peck (SDNY) was foiling Cyrus Select Opportunities’ efforts to oppose Ion Media’s chapter 11 plan, while in the Northern District of Texas, Judge Jernigan was putting the stops on Michigan Retirement Systems’ attempt to thwart Erickson Retirement Communities’ allocation of value to PNC Bank

Last week the Supreme Court exercised its option to do nothing about a Seventh Circuit decision allowing the federal government to cram a $150 million remediation obligation onto a chapter 11 successor corporation – all because the feds chose to proceed under RCRA (the federal hazardous waste statute) rather than CERCLA (the Superfund cleanup statute). Smart tactics by the feds.

In re Leslie Controls, Inc., No. 10-12199 (Bankr. D. Del. Sept. 21, 2010), involved a very common scenario. A company in financial difficulty sought to negotiate a consensual restructuring with an ad hoc committee and, in that context, disclosed various confidential analyses. In this particular case, the company had asbestos exposure, the ad hoc committee represented asbestos plaintiffs, and the shared information included a memorandum and numerous e-mails concerning potential insurance recoveries under various bankruptcy scenarios.

On July 13, 2010, the U.S. Court of Appeals for the Third Circuit held, in a landmark decision, that a plan sponsor which had the right to unilaterally terminate retiree benefits outside of bankruptcy could not exercise that same right during a bankruptcy proceeding. The case, IUE-CWA v. Visteon Corp. (In re Visteon Corp.), marks the first time that a Circuit Court of Appeals ruled against a bankrupt employer in its attempt to unilaterally terminate non-vested retiree welfare benefits.