The health of the healthcare industry can be summarized as follows: as go federal reimbursement rates, so goes the financial viability of healthcare providers, whether hospitals, nursing homes or medical practices.

“The Pen Is Mightier Than The Sword…And Verbal Communications During Company-Wide Employee Meetings.”

As is well known, the right to credit bid is the entitlement of a secured lender to bid the amount of its outstanding claims at the sale of its collateral. If the secured lender places the winning bid, no money is exchanged and the purchase price is offset against the existing claims. Credit bidding provides an important right to secured lenders in ensuring that their collateral is not sold for a depressed value. If a secured lender thinks its collateral is being sold too cheaply, it has the option of taking the collateral in exchange for some or all its claims.

The Financial Crisis, a difficult market situation and a tense liquidity status have led to remarkable difficulties for mid-sized businesses within the past years. Strategic and financial investors have and continue to utilize these circumstances to acquire interesting distressed companies for comparatively moderate purchase prices.

In order to benefit from these circumstances, investors need to understand how to avoid or minimize the risks of liability related to such acquisitions.

Two recent decisions may affect the assets of individuals available to satisfy creditors' claims in bankruptcy. In the first decision, the Bankruptcy Court for the Eastern District of New York determined that married, joint debtors received value in exchange for tuition payments and rejected the bankruptcy trustee's arguments that the tuition payments were fraudulent transfers.

Introduction

Several recent legal developments will likely impact acquisition finance.

Recent developments in the bankruptcy arena have placed a greater burden on claimants. Creditors are now required to make additional disclosures in their proof of claim forms, and courts are under no obligation to recognize late-filed claims. Proposed changes to the Bankruptcy Rules, including an amendment slashing the time to file a proof of claim, highlight the need for creditors to exercise extra vigilance.

GREATER DISCLOSURE

The Court of Appeals for the Fourth Circuit, in Jaffe v. Samsung Elecs. Co., Ltd.^,1 recently held that a U.S. bankruptcy court is not required under principles of comity to blindly apply foreign law to assets located in the U.S. of a foreign debtor whose principal insolvency proceeding is outside the U.S. Instead, bankruptcy courts must balance the interests of the affected U.S. parties with the those of the foreign debtor. In this case, the balancing required the application of U.S. law to the foreign debtor’s U.S. assets, not German law as applied in the foreign proceeding.

The Third Circuit recently held that claims purchased from trade creditors by a claims trader will be disallowed under section 502(d) of the Bankruptcy Code when the seller of the claim received, and did not repay, a preference. In doing so, the United States Court of Appeals for the Third Circuit expressed its disagreement with a relatively recent decision in the United States District Court for the Southern District of New York which reached the opposite conclusion.