In a recent decision, the Court of Appeals for the Sixth Circuit held that the election of a tenant, under Section 365(h) of the Bankruptcy Code, to remain in possession of real property governed by a rejected lease causes a third-party guaranty on another rejected agreement to remain in effect, to the extent such agreement and the lease are part of an integrated transaction.
A recent decision of the New York Court of Appeals, Sutton v. Pilevsky held that federal bankruptcy law does not preempt state law tortious interference claims against non-debtors who participated in a scheme that caused a debtor—in this case a bankruptcy remote special purpose entity—to breach contractual obligations intended to ensure that the entity remains a Special Purpose Entity (SPE) and to facilitate the lenders’ enforcement of remedies upon a future bankruptcy filing, if any.
A recent decision of the New York Court of Appeals, Sutton v. Pilevsky held that federal bankruptcy law does not preempt state law tortious interference claims against non-debtors who participated in a scheme that caused a debtor—in this case a bankruptcy remote special purpose entity—to breach contractual obligations intended to ensure that the entity remains a Special Purpose Entity (SPE) and to facilitate the lenders’ enforcement of remedies upon a future bankruptcy filing, if any.
Real estate lenders and borrowers everywhere are trying to figure out what to do with properties that are either sitting vacant or underperforming pre-pandemic expectations. In New York, a number of mezzanine foreclosures have been pursued with varying degrees of success when challenged in court. Some lenders have been shopping their loans, mostly at discounts to par that are not large enough to create substantial deal flow in the marketplace.
The Bottom Line
Part I -- Introduction
Dischargeable Claims
In the latest decision arising out of long-running disputes over confirmation of the Tribune Company’s Chapter 11 plan, the Third Circuit issued important new guidance concerning the enforceability of subordination agreements in cramdown plans, holding (1) that subordination agreements “need not be strictly enforced” in such plans, and (2) that the relevant comparison, for determining unfair discrimination, need not always be a comparison between the recovery of the preferred class and the dissenting class, but may sometimes entail a comparison between the dissenting class’s desired and act
On September 29, 2020, the United States House of Representatives Committee on the Judiciary advanced a Democrat-backed bill to the full chamber that seeks to address perceived shortcomings in the Bankruptcy Code’s protections for employee and retiree benefits and to curtail the use of bonuses and special compensation arrangements for executives in bankruptcy cases.
The Bottom Line
The Third Circuit, in Artesanias Hacienda Real S.A. de C.V. v. N. Mill Capital, LLC (In re Wilton Armetale, Inc.), 968 F.3d 273 (3d Cir. 2020), issued a decision with potential implications for creditors who wish to pursue causes of action after a bankruptcy trustee refuses to act on such claims. The Third Circuit held that if a bankruptcy trustee clearly abandons a cause of action, the right of creditors to pursue that cause of action “spring[s] back to life.”
What Happened?