Two recent decisions of the US District Court for the Southern District of New York may complicate future debt exchange offers. The cases address the validity, under the Trust Indenture Act of 1939, as amended (the Act), of indenture amendments that delete substantive covenant protections in the context of out-of-court debt restructurings. Such amendments are a common feature of debt exchange and cash tender offers and are often essential to achieve a restructuring outside of bankruptcy court.

With the near-historic drop in oil prices, distressed investors are evaluating a myriad of investment opportunities in the oil industry and related fields. One particular area of focus when analyzing these energy-related opportunities are the master limited partnerships that many energy companies utilize in their corporate structure.

Drop in Oil Prices

The House of Representatives passed the Financial Institution Bankruptcy Act of 2014 (H.R. 5421) on December 1, 2014.  The bill, if enacted, would add provisions to the U.S. Bankruptcy Code, including a new "subchapter V" of chapter 11, under which "covered financial institutions" would be eligible to be debtors in a chapter 11 bankruptcy case.   

First in a Series of Articles on Bankruptcy Issues

For many investors, business bankruptcy is a mysterious black box that chews up investor and creditor value and then spits out assets or, occasionally, a reorganized operating company. In this series of articles, we are going to open up that box and shed some light on the processes of bankruptcy. After all, you never know what business will file next. It is best to have some understanding of the nature of the game – and to be as well-armed as possible.

Originally appeared in the August 2014 issue of The Bankruptcy Strategist.

Finds Bankruptcy Court to be Proper Forum for Claim Objection Despite Forum Selection Clauses in Investor Agreements

The Southern District of New York recently reiterated the critical difference between creditor claims and equity interests in the bankruptcy context.  In a recent opinion arising out of the Arcapita Bank bankruptcy case, the Court was faced with an objection to a proof of claim filed by an investor, Captain Hani Alsohaibi, who characterized his right to recovery against the debtors as being based on a “corporate investment.”

On June 4, 2014, the New York Court of Appeals will hear arguments arising from the bankruptcies of two law firms—Thelen and Coudert Brothers—as to whether the former partners of the bankrupt law firms must turn over profits earned on billable-hour client matters they brought to their new firms.

Following recall notices for its ignition switches in February 2014, General Motors, LLC (“New GM”) has been hit with at least 50 class actions and two individual suits in not less than 20 federal and two state courts asserting claims against New GM for defective vehicles and parts sold by Motors Liquidation Company, formerly known as General Motors Corporation (“Old GM”).

On April 17, 2014, the United States Bankruptcy Judge Sean H. Lane issued an opinion in the Waterford Wedgwood bankruptcy discussing at length one of the defenses available to preference defendants.  The opinion turns upon the scope of “ordinary business terms,” the objective prong of the ordinary course of business defense.

A recent opinion out of the United States Bankruptcy Court for the Eastern District of Virginia (Richmond Division) serves as a reminder to secured creditors to steer clear of conduct that a bankruptcy court may deem inequitable and provide the court with cause to limit the secured creditor’s credit bid rights.  In In re The Free Lance-Star Publishing Co.