Vendors who sell goods to customers are probably familiar with the issues that arise when the customer later files bankruptcy.

In a welcome bit of good news for lenders, US District Court Judge Gold (Southern District of Florida) reversed the portion of the 2009 bankruptcy court decision in the TOUSA, Inc. bankruptcy cases that had ordered the disgorgement of $403 million plus interest based on the holding that the amounts were received by certain lenders to the TOUSA parent in connection with a pre-petition transaction that constituted a fraudulent transfer.

On February 8, 2011, the Second Circuit Court of Appeals issued an opinion that will have a major impact on Chapter 11 plan confirmation. In consolidated appeals stemming from theIn re DBSD North America, Inc. bankruptcy case, the Second Circuit held that (1) the “gifting” aspect of the debtors’ plan of reorganization violated the absolute priority rule, and (2) the bankruptcy court did not err in designating a secured creditor’s vote as lacking “good faith” and disregarding that vote for purposes of confirmation.

The DBSD Plan

With the future of the New York City Off Track Betting Corp. up in the air, the New York Senate returned to the Capitol Tuesday, Dec. 7, to find itself in the middle of a long-standing battle between tracks and OTB corporations in the state.

Officials at the NYCOTB, which is in Chapter 9 bankruptcy protection, vowed to shut down the stateowned betting giant at midnight Dec. 7 if the Senate does not pass a reorganization bill already approved last week by the Assembly.

In an October 19, 2010 opinion arising out of the Scotia Pacific bankruptcy cases, the Fifth Circuit ruled that reorganized Scotia and its affiliate Pacific Lumber Company were obliged – nearly 2½ years after Scotia’s reorganization plan was consummated – to pay Scotia’s former secured lenders approximately $30 million on account of a mistake made by the bankruptcy judge in calculating the amount owed to the secured lenders for the use of their collateral during the bankruptcy cases.

The concurring opinion in a recent Third Circuit Court of Appeals case1 suggests that trademark licensees may be able to retain their rights in bankruptcy cases, even if licensors reject the license agreements. The majority did not consider whether the licensee could retain its rights. Instead, the majority held that the trademark license was not an executory contract; therefore, it could not be rejected under the Bankruptcy Code. The majority opinion applies narrowly to circumstances involving perpetual, exclusive, and royalty-free trademark licenses.

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.

Title II of the Act, designated "Orderly Liquidation Authority" – effective July 21, 2010 – establishes what is intended to be an orderly liquidation process for "financial companies" whose collapse or potential collapse are determined to constitute a risk to the financial system as a whole. Such systemically significant institutions would be liquidated under these new procedures, rather than being treated under existing bankruptcy laws. (The intent of Act is that most-failing financial companies will continue to be administered under existing bankruptcy laws.)