On November 28, 2012, the United States Court of Appeals for the Fifth Circuit published an opinion affirming the bankruptcy court’s ruling that the Mexican Plan of Reorganization (the “Concurso Plan”) of the Mexican glass-manufacturing company, Vitro, S.A.B.
Under Internal Revenue Code (“Code”) section 436, unless a defined benefit pension plan sponsored by a debtor in bankruptcy is fully funded, the plan may not make “prohibited payments” (i.e., lump sum payments or payments in any other form that exceed the monthly amount under a single life annuity). Moreover, the anti-cutback rule in Code section 411(d)(6) prohibits a plan from being amended to eliminate an optional form of benefit.
The Department of Labor (“DOL”) sued the president of several related companies to establish his personal liability for more than $67,000 in employee contributions never remitted to the employer sponsored benefit plans and to prevent him from discharging this liability in his pending personal bankruptcy action. Over a nearly three-year period, the companies withheld but never remitted the employee contributions to the companies’ group health and 401(k) plans (the “Plans”).
A federal court recently held that two investment funds are not jointly and severally liable for a bankrupt portfolio company’s withdrawal liability to a multiemployer pension plan disagreeing with a 2007 opinion by the Appeals Board of the Pension Benefit Guaranty Corporation (the “PBGC”). The Massachusetts U.S. District Court ruled there was no liability because the investment funds are not “trades or businesses” for purposes of ERISA’s joint and several liability rules.
The Bankruptcy Code provides a number of “safe harbors” for forward contracts and other derivatives. These provisions exempt derivatives from a number of Bankruptcy Code provisions, including portions of the automatic stay,1 restrictions on terminating executory contracts,2 and the method for calculating rejection damages.3 The safe harbor provisions also protect counterparties to certain types of contracts from the avoidance actions created under Chapter 5 of the Bankruptcy Code, such as the preference and fraudulent transfer statutes.4
- Introduction
Recent cases interpreting Chapter 15 of the United States Bankruptcy Code (11 U.S.C. § 101, et seq., as amended) (the “Bankruptcy Code”) suggest that there are different standards for recognizing whether domestic entities and foreign entities have filed insolvency proceedings in the proper venue.
The Bankruptcy Abuse, Prevention and Consumer Protection Act of 2005, which was signed into law in the United States on April 20, 2005 and went into effect, for the most part, on October 17, 2005, created a new chapter of the United States Bankruptcy Code (11 U.S.C. 101, et seq., as amended) (the “Bankruptcy Code”) – Chapter 15. Chapter 15 replaces and modifies the earlier Bankruptcy Code sections that dealt with multi-national insolvency proceedings.
Every lender sincerely hopes that, even when its borrower is flat on the floor and seems down for the proverbial count, the borrower will still find the wherewithal to repay it. A lender often starts counting the days after it is repaid until the 90-day preference period (11 U.S.C. §547) has passed. The lender generally breathes a sigh of relief on the 91st day, confident that if its borrower files for bankruptcy, the money paid to the lender is safe from being clawed back by the Bankruptcy Court.
On July 9, 2012, the Seventh Circuit decided in Sunbeam1 that the rejection of a trademark license by a bankrupt trademark licensor does not deprive the trademark licensee of its right to continue to use the trademark, and disagreed with the 1985 Fourth Circuit decision in Lubrizol2 that held to the contrary.3 In reaction to the Lubrizol decision, which held that the rejection of a license by a bankrupt licensor of intellectual property terminated the rights of the licensee, Congress enacted Section 365(n) of the Bankruptcy
The Issue
The issue is whether the insolvency of a borrower under a non-recourse loan can trigger recourse liability for itself and its “bad boy,” non-recourse carve-out guarantors.