Can a debtor seeking debtor-in-possession (“DIP”) financing under Section 364 of the Bankruptcy Code grant a lender a lien on a leasehold interest in the face of an express anti-hypothecation provision in the underlying lease?

One of the primary objectives of the Bankruptcy and Insolvency Act (“BIA”) is to provide the bankrupt with an opportunity to stay existing creditors and establish a financial “clean slate”. The stay imposed on existing creditors includes creditors with causes of action existing at the time the bankruptcy is initiated. As a result, bankrupts can cause a halt to any existing or potential litigation by assigning themselves into bankruptcy.

Case Comment - Re White Birch Paper Holding Co.

The purchase of an insolvent company’s assets by way of a credit bid has recently garnered attention, primarily because of the use of a credit bid in the Canwest Publishing Group restructuring. This past September the issue was again addressed under the Companies’ Creditors Arrangement Act (“CCAA”), this time by the Quebec Superior Court in the restructuring of White Birch Paper Holding Co. (“WBP”). The Court reaffirmed the acceptance of credit bids by Canadian courts.

The Second Circuit Court of Appeals issued a summary order this week upholding the aggressively unfavorable treatment of a senior secured creditor under the reorganization plan (the “Plan”) of DBSD North America, f/k/a ICO North America (“DBSD”).

Some legal commentators have lamented the extent to which lenders have been able to use debtor in possession (“DIP”) financing arrangements to gain control over an entire Chapter 11 case.

Bankruptcy lawyers who are regularly involved in distressed m&a deals have been wondering for the past few months about the potential fallout from Philadelphia Newspapers.

REDMOND v. FIFTH THIRD BANK (October 20, 2010)

COSTELLO v. GRUNDON (October 18, 2010)

IN RE: RESOURCE TECHNOLOGY CORP. (October 1, 2010)

The chapter 11 case of DBSD North America, Inc. (“DBSD”), f/k/a ICO North America, has been marked by aggressive tactics and extreme positions from its commencement. DBSD, a non-operating satellite communications company, and its second lien noteholders made clear their intent to cram down a plan of reorganization (the “Plan”) on DBSD’s first lien lenders.