On March 1st, the Seventh Circuit held that negative equity is included in a creditor's purchase money security interest and is not subject to a bankruptcy court's cramdown authority under Chapter 13 of the Bankruptcy Code. In re Aubrey Howard.

On February 10th, the US Court of Appeals for the Fifth Circuit addressed, in one opinion, two separate appeals arising from a company's Chapter 11 bankruptcy. At the outset, the Court held that a severance payment to the firm's former CEO was a fraudulent transfer. The former CEO was an insider, since he was still CEO when the severance agreement was signed, even though he was not employed when he received the actual payment. The Court held further that the company did not receive equivalent value for the severance payment.

On January 28th, the Ninth Circuit addressed the issue of whether a Chapter 7 bankruptcy trustee had actual notice of an unrecorded refinanced mortgage when the bankruptcy petition was electronically filed simultaneously with schedules listing the mortgage as a secured debt. The Court held that the trustee lacked actual notice. The Court found that the filing of the petition was a separate event from the filing of the schedules. The trustee was therefore a bona fide purchaser for value without notice and under state bona fide purchaser law, the trustee could avoid the unrecorded mortgage.

On January 22nd, the FDIC and the Bank of England announced their agreement to a memorandum of understanding, expanding their cooperation when they act as resolution authorities in resolving troubled deposit-taking financial institutions with activities in the United States and United Kingdom. FDIC Press Release.

The Office of the Comptroller of the Currency approved the first use of a "shelf charter" for the acquisition of a failed bank, allowing Bond Street Bank, National Association, to acquire a Florida bank that was placed in receivership on January 22nd. The "shelf charter" is a mechanism that involves the granting of preliminary approval to investors for a national bank charter. The charter remains inactive until the investor group is in a position to acquire a troubled institution.

On January 19th, the FDIC announced that it will open a temporary satellite office in suburban Chicago to manage receiverships and to liquidate assets from failed financial institutions primarily located in Midwestern states. FDIC Press Release.

The Senate Banking Committee is considering the establishment of a special bankruptcy court for financial firms as part of its regulatory reform measures. Bankruptcy.

On January 11th, the Eighth Circuit held that a bankruptcy court properly awarded summary judgment to the bankruptcy trustee in a suit seeking to avoid as a preferential transfer, the pre-petition transfer of a mortgage from the debtor to the bank. Because the bank failed to record the home mortgage prior to the borrower's filing of a Chapter 7 bankruptcy petition, Section 547(e)(2)(C) of the Bankruptcy Code deemed the transfer of the mortgage to have occurred immediately before the debtor filed his bankruptcy petition.

On December 16th, the CFTC published for comment amendments to its regulations concerning the operation of a commodity broker in bankruptcy. The amendments would permit a bankruptcy trustee to operate, with the written permission of the CFTC, the commodity broker in the ordinary course, including the purchase or sale of new commodity contracts on behalf of the customers of the commodity broker under appropriate circumstances, as determined by the Commission.

No Respite for Distressed Companies in Hong Kong

In Hong Kong, a company that is financially distressed may generally only avoid being liquidated or wound up if it: