On September 30, 2010, in In re American Safety Razor, LLC, et al, Case No 10-12351 (MFW), the United States Bankruptcy Court for the District of Delaware ruled that the debtors’ proposed bid procedures for the sale of the business were unfair and unreasonable. The bid procedures, among other things, provided too much discretion to the debtors in the auction process.

363 Sales in General

Perhaps prompted by revelations that one or more Connecticut-based insurers failed to notify individuals or report known data security incidents or breaches until weeks, or even months, after the data had been lost or stolen, the state's Insurance Commissioner has issued stringent new reporting obligations applicable to all entities regulated by the Connecticut Department of Insurance (CDI), including, for example, insurers, agents, brokers, adjusters, health maintenance organizations, preferred provider networks, discount health plans and certain consultants and utilization review companie

On October 5, 2010, Judge Bruce Black of the United States Bankruptcy Court for the Northern District of Illinois (the “Bankruptcy Court”) issued a ruling in the River Road Hotel Partner LLC, et. al. (the “Debtors”) bankruptcy cases denying the Debtors’ bid procedures motion incident to plan confirmation. The bid procedures motion, among other things, sought the denial of secured creditor’s right to credit bid.

Once a company files a Chapter 11 bankruptcy petition (to sell its assets, reorganize or liquidate), Bankruptcy Code § 1114 sets forth a detailed procedure for the employer to follow to modify or terminate certain retiree benefits. Among other things, § 1114 imposes on the employer the burden of showing that the elimination or modification of benefits is necessary to permit reorganization.

A group of creditors learned the hard way that there may be no excuse for a late claim. U.S. Bankruptcy Judge James Peck of the Southern District of New York recently disallowed seven proofs of claim that had been filed late in the Lehman bankruptcies. Judge Peck held that the reasons cited by the parties for the late filing did not rise to the level of “excusable neglect” and he was thus disallowing their claims. This is of particular interest as it comes out of the Southern District of New York, which has one of the largest bankruptcy dockets in the country.

The Eleventh Circuit recently affirmed the avoidance of nearly $2 million in postpetition payments made by debtor Delco Oil, Inc. (the "Debtor") to its petroleum supplier Marathon Petroleum Company, LLC ("Marathon").[1] The Eleventh Circuit held that funds received by Marathon from the Debtor constituted cash collateral that the Debtor had spent without the permission of either its secured lender, CapitalSource Finance ("CapitalSource"), or the bankruptcy court and, therefore, could be avoided under sections 549(a) and 363(c)(2) of the Bankruptcy Code.

This paper is designed to provide a brief update of recent decisions of note that concern various ethical issues bankruptcy attorneys often encounter, focusing on conflicts of interest and privilege issues.

Debt for Equity Exchanges Outside Bankruptcy

The recession has highlighted a new risk for borrowers – the risk that a lender will be insolvent and default on its obligation to fund loans under the credit agreement. This has created unexpected issues under credit agreements, which were written at a time when lender insolvency was not a perceived risk.”34

The recent case of Mervyn’s LLC v Lubert-Adler Group IV, LLC, et al. (In re Mervyn’s Holdings, LLC),1 serves as a warning to sellers and equity firms participating in leveraged buyouts to be wary of the effect such buyouts will have on creditors of the target company.