Representing a mortgagee holding liens on 37 unsold condominium units, Herrick, Feinstein successfully blocked a debtor's effort to confirm a chapter 11 plan of reorganization via cramdown. The plan envisioned sales of 27 unsold units over five years, deferred payments to the mortgagee at the rate of 4.75%, and scheduled principal pay downs from the sale of units.

The Delaware Chancery Court has found the recapitalization of a media production company entirely fair. Faced with the possibility of bankruptcy and unable to service its debt, the company's board of directors (acting through its special committee) approved a revised recapitalization plan proposed by the company's majority stockholder and primary debt holder. The special committee retained independent legal counsel and a financial advisor. The special committee, after engaging in extensive due diligence, determined to negotiate the recapitalization proposal.

A New York bankruptcy judge has refused to permit a debtor to use rents generated by its real property because the rents absolutely assigned to the lender pre-petition were not property of the debtor's bankruptcy estate.2 Before the bankruptcy filing, the lender sent the borrower a default notice and terminated the borrower's license to collect rents. The lender also directed tenants to pay rents to it and not the borrower, commenced a foreclosure action, and sought appointment of a receiver.

Reversing the bankruptcy court, a Sixth Circuit Bankruptcy Appellate Panel held that a debtor in a single asset real estate case did not provide adequate protection to a creditor by providing replacement liens in the rents where there was no equity cushion.4 The notion that granting the lender a lien on future rents to replace the expenditure of prior months' rents was rejected. Accordingly, the appellate panel held that the debtor could not use rents collected post-petition to pay ordinary administrative expenses, such as fees of its professionals.

It is commonly known that a borrower's agreement with a third party not to file a bankruptcy case is unenforceable due to public policy considerations. Accordingly, lenders have searched for ways to make it difficult or painful for their borrowers to file for bankruptcy, such as imposing the requirement that prior authorization of an independent director or member be a prerequisite to a bankruptcy filing by the borrower, or requiring the borrower's principal to execute a non-recourse carve-out guaranty that would impose personal liability should the borrower file for bankruptcy.

In Canada, as in the US, corporate debtors are permitted with court approval to obtain DIP financing on a super-priority basis. The Order typically provides protections as hard as a nutshell, including that pension claims cannot crack the shell of protection and are subordinated to the new DIP loan. A recent Canadian decision, however, held that certain pension claims could crack the nut wide open and should be paid ahead of a DIP loan. Re Indalex Limited, 2011 ONCA 265 (Apr. 7, 2011).

Last month we reported on the overwhelming victory of the Transeastern Lenders in their appeal of the decision by the United States Bankruptcy Court for the Southern District of Florida ordering them to disgorge almost $500 million in loan repayments, pre- and post-judgment interest and professional fees (“TOUSA I“1). That update can be found here.

The Second Circuit Court of Appeals' February 7, 2011 decision, which reversed the confirmation of a plan of reorganization for DBSD North America, Inc. ("DBSD")1 is likely to have an impact nationwide.

In a 113-page decision issued on February 11 (the "District Court Decision"), the United States District Court for the Southern District of Florida (Gold, J.) delivered a blistering rebuke to the Florida Bankruptcy Court (Olson, J.) when it quashed the portions of the famous / infamous 2009 TOUSA decision (the "Trial Decision") holding the so-called "Transeastern Lenders" liable for fraudulent transfers in connection with T

In a 113-page decision issued earlier today, the United States District Court for the Southern District of Florida (Gold, J.), quashed the famous / infamous decision of the Florida Bankruptcy Court holding the so-called “Transeastern Lenders” liable for fraudulent transfers in connection with TOUSA’s July 31, 2007 financing transactions (the “July 31 Loans”). In re TOUSA, Inc., Slip Op., Case No. 10-60017-CIV/GOLD (S.D. Fla. Feb. 11, 2011).