Courts agree that bankruptcy trustees control bankrupt companies' attorney-client privilege. It is easy to underestimate this basic principle's strength.
An overvalued property may now have a bigger impact on a secured creditor’s bottom-line during bankruptcy. Splitting with the Seventh Circuit, the Fifth Circuit in Southwest Securities, FSB v.
In 2015, the energy sector accounted for more than one-half of all public company bankruptcy filings, including eight of the 10 largest filings. Current oil prices and bond values indicate that 2016 will be another active year. As of late January 2016, crude oil prices hovered around $30 per barrel. These low prices are reflected in the bond market, where in December 2015, approximately $80 billion in non-defaulted oil and gas debt was trading below 50 cents on the dollar.
On January 25, Lehman and JPMorgan announced a settlement to resolve several aspects of the contentious and multifaceted Lehman-JPMorgan dispute that has lingered throughout Lehman’s bankruptcy. The bankruptcy court will hear a motion to approve the settlement on February 8.
The District Court for the Southern District of New York recently affirmed the Bankruptcy Court’s decision to approve the method used by trustee of the estate of Bernard L. Madoff Investment Securities LLC (BLMIS) to value the net equity of transfers between BLMIS accounts. See In re BLMIS (Melton Tr. v. Picard), Case No. 1:15-cv-01195-PAE (S.D.N.Y. Jan. 14, 2016).
Background
Two recent court decisions may result in a broadening of the range of options available to an equity sponsor in respect of an insolvent portfolio company. The first decision may provide increased flexibility in structuring asset sales in certain chapter 11 settings, by utilizing escrows and other techniques to potentially avoid the need to apply asset-sale proceeds strictly in accordance with creditor priorities under the U.S. Bankruptcy Code.
Many courts recognize that a corporation's constituent (such as an audit committee or a group of independent directors) can own the privilege and work product protection covering the constituent's internal corporate investigation. Under this approach, the company's bankruptcy trustee cannot access or waive that privilege or work product protection. See, e.g., Ex parte Smith, 942 So. 2d 356 (Ala. 2006) (denying a bankruptcy trustee's attempt to access pre-bankruptcy communications between the company's independent directors and its Skadden Arps lawyers).
It is a basic feature of sales under section 363 of the U.S. Bankruptcy Code, that the purchaser takes free and clear of all claims and interests, such claims and interests attach to the proceeds of the sale in accordance with their priorities.
On Sept. 30, a district court resolved a significant portion of outstanding litigation in the bankruptcy proceeding of Lehman Brothers Holdings Inc. and its subsidiaries.See Lehman Bros. Holdings Inc. v. JPMorgan Chase Bank, N.A. (In re Lehman Bros. Holdings Inc.), No. 1:11-cv-06760 (S.D.N.Y. Sept., 30, 2015). This litigation flows from the debtors’ allegations that JPMorgan Chase Bank, N.A. (JPMC) coerced billions of dollars from Lehman on the eve of its bankruptcy filings in September 2008. Lehman Brothers Holdings Inc.
When a portfolio company underperforms, a sponsor may consider various options to address the perceived performance issues, including changes to a portfolio company’s management team, cost structure, capital structure or other parameters, depending on the nature of the issue(s) at hand. When changes in capital structure may be desirable, often in the context of excessive debt and related liquidity issues, a sponsor’s choices may include a consensual workout outside of bankruptcy, or a court-supervised restructuring under Chapter 11 of the U.S.