The U.S. Court of Appeals for the Third Circuit took a bite out of a bagel store’s bankruptcy petition by holding that sales taxes are non-dischargeable “trust fund” taxes rather than excise taxes. In Re: Michael Calabrese, Jr., No. 11-3793 (3d. Cir. July 20, 2012). After not having enough dough to pay their debts, Don’s What a Bagel, Inc. and its individual owner both filed for bankruptcy protection.

On June 13, 2012, the bankruptcy court for the Northern District of Texas in In re Vitro, S.A.B. de C.V. (“Vitro SAB”) declined to recognize and enforce an order issued by the Federal District Court for Civil and Labor Matters for the State of León, Mexico, which approved Vitro SAB’s reorganization plan in its Mexican insolvency proceeding (known as a concurso mercantil proceeding). Vitro S.A.B. v. ACP Master Fund, Ltd., et al. (In re Vitro S.A.B.), Case No. 11–33335 (HDH), 2012 WL 2138112 (Bankr. N.D. Tex. June 13, 2012).

Admonishing that motions to dismiss for failure to state a claim must be decided based on whether a plaintiff's complaint is plausible rather than how plausible it is, which was the district's view in granting a dismissal motion, the Second Circuit, in Anderson News, L.L.C. v. American Media, Inc.,[1] declared improper the district court's denial of leave to file a proposed amended complaint and vacated the dismissal.  

On May 29, 2012, the Supreme Court in In RadLAX Gateway Hotel, LLC (“RadLAX”) held that a Chapter 11 reorganization plan that proposes the sale of encumbered assets free and clear of liens must honor the secured creditor’s right to credit bid its claim in order to be confirmed under the “fair and equitable” standard of the Bankruptcy Code.

It is not uncommon for firms to use standard language in their account agreements that creates liens on Individual Retirement Accounts (IRAs). Two recent federal court decisions, however, suggest that granting such a lien on an IRA may constitute a prohibited transaction that causes these accounts to lose their tax exempt status, which in turn could potentially make IRAs subject to third-party creditor claims. These two decisions could have far-reaching implications for any firm that has used or still uses similar lien-creating language in their account agreements.

Taking the lead from its recent decision in In re River Road Hotel Partners,¹ in In re River East Plaza, LLC,² the Seventh Circuit held that a debtor cannot avoid the lien retention prong of Section 1129(b)(2)(A)(i)³ by transferring an undersecured creditor’s lien to substitute collateral as indubitable equivalence pursuant to Section 1129(b)(2)(A)(iii).

最高人民法院关于适用《中华人民共和国企业破产法》若干问题的规定（一）(09/09/2011)

Overview of Insolvency Rules and Restructuring Procedures Pursuant to Italian Bankruptcy Law

On October 31, the MF Global enterprise collapsed into bankruptcy and a number of related insolvency proceedings. Amid allegations of improper commingling of customer accounts and rumors of misbegotten proprietary Eurobond trades, two unregulated entities – MF Global Finance USA Inc. and MF Global Holdings Ltd. (the Unregulated Debtors) – filed voluntary bankruptcy petitions on October 31, 2011. Later the same day, the Securities Investor Protection Corporation filed a complaint in the U.S.

It will be almost Christmas before we know, at least for portfolio companies that can file in the Delaware Bankruptcy Court. The case that will provide guidance is Friendly Ice Cream Corp., where Sun Capital, which is both equity owner and term lender, put Friendly into Chapter 11 on October 5, 2011. It did so after agreeing to a Section 363 purchase agreement with Friendly that would allow a Sun affiliate to buy assets (including desirable lease locations) free and clear by credit bidding outstanding pre-petition term debt owed to Sun.