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

On December 16, 2010, the Supreme Court of Canada determined that in Companies’ Creditors Arrangement Act (“CCAA”) reorganization proceedings, the Crown enjoys no super-priority status in relation to its claims for unremitted sales taxes arising under the Goods and Services Tax (the “GST”) or similar provincial sales taxes.

The aggregate costs associated with a formal court-supervised insolvency proceeding can be substantial. In Canada, the obligation to pay these restructuring costs are typically secured by court-ordered charges over all of the property of the debtor and can rank in priority to the liens of secured creditors in the same collateral. As a result, these costs can have a material impact on the ultimate net recovery received by creditors. But how is the burden of these costs shared among secured creditors?

In the recent decision in Re Xerium Technologies Inc.1, the Ontario Superior Court of Justice recognized an order made by the U.S. Bankruptcy Court for the District of Delaware that confirmed the debtor’s pre-packaged Chapter 11 plan of reorganization. The decision provides useful guidance on how the Ontario Court may consider similar applications in the future. Many will take comfort from the fact that the decision revisits a number of relevant factors established in case law that pre-dates the current formulation of the cross-border provisions that make up Part IV of the CCA A.

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.