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

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.

LLC members and other persons dealing with LLCs will be interested in a recent Florida Supreme Court case that was decided on June 24, 2010. The court’s decision in Olmstead v. FTC appears to eliminate part of the asset protection feature of single-member LLCs and calls into question the remedies available to creditors of members in multiple-member LLCs.

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

In a recent split decision, a 2-1 majority for the United States Court of Appeals for the Third Circuit ruled that a debtor’s plan of reorganization that proposes a sale of assets free and clear of liens is not necessarily required to allow creditors whose loans are secured by those assets to credit bid at the sale. The majority decision in In re Philadelphia Newspapers, LLC, Nos. 09-4266, 09-4349, 2010 WL 1006647 (3d Cir. Mar. 22, 2010), which follows a similar decision from the United States Court of Appeals for the Fifth Circuit (see Bank of N.Y. Trust Co., NA v.

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.

On March 22, 2010, the Third Circuit released its long-awaited ruling in the Philadelphia Newspapers case regarding the applicability of credit bidding.