When doing business with a foreign company, it is important to identify the company’s “center of main interests” (“COMI”) as creditors may find themselves bound by the laws of the COMI locale. If a company initiates insolvency proceedings outside the U.S., it must petition a U.S. court under Chapter 15 of the Bankruptcy Code for recognition of the foreign proceeding.
In a recent decision by the Bankruptcy Court for the District of Delaware, the court adopted a flexible approach to consensual third party releases in a plan of reorganization. In In re Indianapolis Downs, LLC, 2013 Bankr. LEXIS 384 (Bankr. D. Del. Jan. 31, 2013), the court permitted third party releases where creditors failed to opt out of the release provisions of the plan either by not submitting their vote on the plan, or by voting against the plan but failing to check the “opt out” box on the ballot.
On April 1, 2013, the U.S. Bankruptcy Court for the Eastern District of California ruled that the City of Stockton qualified to file for protection under chapter 9 of the Bankruptcy Code. The court’s decision on this issue serves as an important milestone for chapter 9 jurisprudence, clarifying the requirements for “good faith” negotiations and being “insolvent” as conditions to filing for chapter 9 protection. Significantly, the court held that a municipal debtor need not negotiate with all of its creditors, only those that it intends to impair.
On March 20, Suntech, a Chinese solar manufacturing company, declared bankruptcy. Questions have arisen on how the country’s solar industry will now cope with overcapacity issues which stem from a decline in demand from Europe. The declaration comes a week after the company announced it had defaulted on $541 million of bonds.
On February 19, 2013, the six-person Review Team appointed by Michigan’s Governor to conduct a detailed financial review of the City of Detroit delivered its report to the Governor. The Report
As a result of the Review Team’s conclusion, the Governor is required to take action under Michigan’s emergency financial manager law by no later than March 21, 2013.
The following flow chart summarizes the next steps to be taken in the financial review process of the City of Detroit.
FCStone, a New York-based commodities brokerage firm, was recently ordered to return a transfer of $15.6 million to the bankruptcy estate of Sentinel Management Group. Approximately $1.1 million of this amount constituted a prepetition transfer of proceeds the debtor obtained from the sale of securities, which proceeds the debtor distributed to a certain segment of its customers, including FCStone.
In Chapter 11 bankruptcy cases, the absolute priority rule requires a debtor’s creditors be paid in full before equity investors receive any value. However, existing equity investors occasionally seek to invest new money in the plan of reorganization process and argue that such investment justifies retention of equity in the reorganized company; equity which otherwise would pass to impaired creditors.
On December 13, 2012, Judge Vincent L. Briccetti from the United States District Court of the Southern District of New York denied the appellant Notes Trustee’s request to compel payment of an administrative expense claim.
A recent ruling in the American Airlines bankruptcy case enforcing an automatic acceleration upon bankruptcy provision serves as a reminder that the enforceability of so-called ipso facto provisions in debt instruments remains an unsettled, forum-dependent question.
On January 7, 2013, the Judge Robert D. Drain of the United States Bankruptcy Court for the Southern District of New York held that a dispute concerning the debtors’ use of cash collateral was not subject to arbitration, notwithstanding a broad arbitration clause in the parties’ underlying agreement, because the decision to allow a debtor to use cash collateral constituted a “core” issue and was a fundamental aspect of the bankruptcy process. In re Hostess Brands, Inc., No. 12-22052 (RDD), 2013 WL 82914 (Bankr. S.D.N.Y. Jan. 7, 2013).
Background