The Bankruptcy Abuse and Consumer Protection Act of 2005 (BAPCPA) purported to eliminate the ability of chapter 11 debtors in possession to pay bonuses to management through Key Employee Retention Plans. However, in recognition of the fact that a real need often exists to incentivize key employees to remain with a reorganizing or liquidating business, bankruptcy courts have approved incentive plans providing for payments to insiders and other employees. Such plans must be carefully crafted to avoid the restrictions on retention bonuses post-BAPCPA.

A federal district court in Delaware, applying New York law, has affirmed a bankruptcy court's dismissal of an adversary proceeding brought by a bankrupt home mortgage company against its directors and officers liability insurers, holding that coverage for a pre-petition lawsuit against the mortgage company was barred by application of an “inadequate consideration” exclusion.Delta Fin. Corp. v. Westchester Surplus Lines Ins. Co., 2009 WL 2392882 (D. Del. Aug. 4, 2009).

The Illinois Mortgage Foreclosure Law has been amended effective as of October 29, 2009, by adding new protections for occupants of dwelling units1 in properties that are in foreclosure. These protections will apply to projects which were rental housing from the outset, and to for-sale housing projects in which units are being rented pending sale or which have been converted to rental housing.  

Notice to Occupants by Receivers and Mortgagees in Possession

In a 56-page opinion, the U.S. Court of Appeals for the Second Circuit sent a long-pending trade secrets case, Jasco Tools, Inc. v. Dana Corporation, Appeal No. 08-2762-bk, back to the lower court for further proceedings because of the bankruptcy court's "flawed application of well established summary judgment principles." (Slip Op.

The United States District Court for the Eastern District of New York, applying New York law, has held that an insured did not violate an insurance policy's cooperation clause when it agreed, without providing advance notice to the insurer, to lift the automatic bankruptcy stay with respect to certain personal injury actions filed against it. Admiral Ins. Co. v. Grace Indus., Inc., 2009 WL 2222369 (E.D.N.Y. July 23, 2009).

In the last several months, a number of major mass media companies have filed for chapter 11 relief, including Ion Media Networks, Sun-Times Media Group, Tribune Company, Young Broadcasting and NV Broadcasting. With the economy still struggling to recover, and asset values continuing to decline, commentators speculate that even more mass media related bankruptcies are on the horizon. Certain aspects of a mass media bankruptcy present unique challenges for the various stakeholders due to the special regulatory requirements involved.

There are signs of hope in the aviation marketplace, with the slow return of financing and the apparent bottoming-out of aircraft values. Buying opportunities abound-but so do risks; and no situation is more frustrating than finding yourself "infected" by someone else's bankruptcy. Even if the market has reached its nadir, there are many companies that are simply not going to survive much longer in the market as it has been redefined.

The United States District Court for the Southern District of New York has affirmed a bankruptcy court's ruling that defense costs advanced by an insurer to a debtor under an Interim Fee Advancement and Non-Waiver Agreement (the Interim Agreement) were not held in trust and, therefore, constituted property of the debtor's estate. Great Am. Ins. Co. v. Bally Total Fitness Holding Corp. (In re Bally Total Fitness of Greater N.Y.), No. 09-CV-4052, 2009 WL 1684022 (S.D.N.Y. June 15, 2009).

The Ninth Circuit Court of Appeals has held that an insured vs. insured exclusion bars coverage for a suit by a debtor-in-possession against former directors and officers of the company. Biltmore Assocs. v. Twin City Fire Ins. Co., No. 06-16417, 2009 WL 1976071 (9th Cir. July 10, 2009). The court rejected the argument that the debtor-in-possession was a different legal entity from the pre-bankruptcy company insured under the policy.

As a general rule, a debtor realizes taxable income upon the partial or total cancellation of its debt. Special rules may apply, however, when the debtor is a “pass-through” entity—e.g., a partnership, a limited liability company (LLC) that is treated as a partnership for United States federal income tax purposes or a subchapter S corporation. Cancellation of debt (COD) income realized by a pass-through entity generally passes through to the entity’s owners, with each owner being required to report its allocable share of such income on its own income tax return.