On September 26, 2013, Judge Steven W. Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan denied the Official Committee of Retirees’ (the “Committee”) motion to stay all eligibility proceedings pending its motion to withdraw the reference. In re City of Detroit, Michigan, Case No. 13-53846, ECF No. 1039 (Bankr. E.D. Mich. Sept.

Voluntary administrators frequently obtain Court orders permitting notices to be issued to creditors electronically. Such orders are made under section 447A of the Corporations Act (the Act) on grounds of efficiency, cost and necessity. See Mothercare Australia Ltd (Administrators Appointed) [2013] NSWSC 263 and Creative Memories Australia Pty Ltd [2013] NSWSC 1294.

On July 24, 2013, Judge Steven W. Rhodes of the Bankruptcy Court for the Eastern District of Michigan approved the City of Detroit’s motion to extend the automatic stay to various non-debtor parties, including certain state officials. The Court’s ruling effectively stays all pending litigation against the City, allows the City to continue to move forward with its chapter 9 case, and paves the way for a dispute over the City’s eligibility to file for chapter 9.

The Chapter 9 Filing and the State Court Litigation

On the afternoon of July 18, 2013, the City of Detroit filed its highly anticipated petition for relief under Chapter 9 of the Bankruptcy Code in the Bankruptcy Court for the Eastern District of Michigan. This marks the largest municipal bankruptcy filing in United States history.¹As a result of the Chapter 9 filing, all actions by creditors to collect prepetition claims against the City are enjoined through the imposition of an automatic stay, except for the application of special revenues pledged to indebtedness.

Introduction

The Full Court of the Federal Court of Australia has rejected an argument that the applicant for an order for a company to be wound in insolvency must prove that the company was insolvent at the "relation-back day" in addition to proving insolvency at the date of filing the application and the date of the hearing. 

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 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.

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.

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