On October 31, 2014, the U.S. Court of Appeals for the 4th Circuit interpreted Maryland law in ruling that a bank’s security interest in a Chapter 11 debtor’s property created by a deed of trust that was executed before, but recorded after, the Internal Revenue Service filed a tax lien, had priority over the tax lien.

Background

If you’re a secured lender, news of a Chapter 11 filing by your borrower can be unsettling. The commencement of a Chapter 11 case triggers an “automatic stay” which, with certain exceptions, operates as an injunction against all actions affecting the debtor or its property.3 Under the automatic stay, a secured lender holding a security interest in the debtor’s property may not repossess or foreclose on that property without the permission of the bankruptcy court.

The inclusion of pre-bankruptcy waivers in “standard issue” credit documents has generated a host of litigation in bankruptcy cases about the enforceability of such provisions.

Bankruptcy Court Decision

In a closely-watched case, the United States Court of Appeals for the Third Circuit recently affirmed the decision of the Delaware District Court, holding that bankruptcy claims are subject to disallowance under section 502(d) of the Bankruptcy Code despite their subsequent sale to a third-party. In In re KB Toys, Inc., No. 13-1197 (3d Cir. Nov.

The Bankruptcy Court for the District of Delaware recently ruled in In re NE OPCO, INC., 2013 Bankr. LEXIS 4569 (Bankr. D. Del. Nov. 1, 2013), that electricity is not a “good” for purposes of 11 U.S.C. § 503(b)(9).

In connection with the bankruptcy of a bank holding company (the “Bank Holdco”) and its operating bank subsidiary (the “Bank”), there are often different classes of creditors competing for one tax refund.

While newly discovered Element 115 (or “ununpentium” as scientists are temporarily calling it) appears to have vanished quickly in a flash of radiation in front of the eyes of Swedish scientists, the United States Bankruptcy Court for the Western District of Oklahoma confirmed that make-whole is a well-established stable compound and here to stay.

While the arrival of His Royal Highness Prince George Alexander Louis of Cambridge has dominated the British (and the world) headlines this week, the U.K. Supreme Court delivered its own long awaited bundle of joy earlier today. In the latest decision in the laborious Nortel and Lehman litigations, the U.K. Supreme Court reversed a lower court decision and held that pension claims should not be treated as priority claims and, instead, they should rank equally with general unsecured claims.

Introduction

Although distressing for the owners and employees, an insolvent businesses can represent an opportunity for a buyer. One of the benefi ts of insolvency is that it can release the underlying business (which may be profi table in itself) from debts and give a buyer the opportunity to make a fresh start.

In doing so, however, buyers should beware of the employment law risks represented by any employees who remain in the business through the insolvency process.

The Acquisition