Over the past few days, Members of Congress have engaged in intensive debate over the terms of the bailout package, now commonly referred to as the Troubled Asset Relief Program (“TARP”). Both Democrats and Republicans have offered criticisms and alternatives to the original Treasury proposal which are summarized below.

Senator Dodd Proposal

Senator Christopher Dodd (D-CT), Chairman of the Senate Committee on Banking, Finance and Urban Affairs has drafted a 100 page bill that encompasses many of the Democratic proposals discussed to date. His bill would:

This memorandum provides an overview of the practical issues facing a sub-participant under a Loan Market Association ("LMA") English-law governed sub-participation agreement as the creditworthiness of grantor deteriorates.

The Bankruptcy Filing

The FSMT has handed down its decision in the case of Asgar Ali Ravjani (trading as Astrad Finance) v Financial Services Authority, which involved the failure to disclose a discharged bankruptcy to the FSA.

In In re Falcon Products, Inc., 381 B.R. 543 (8th Cir. BAP, 2008), the bankruptcy appellate panel (BAP) for the Eighth Circuit reversed a decision by the bankruptcy court for the District of Missouri, and held that when applying the hypothetical liquidation test to determine whether a secured creditor received potentially preferential payments, the collateral must be valued as of the petition date and not as of the payment transfer date.

In a recent decision of the United States Bankruptcy Court for the District of Delaware, Jeld-Wen, Inc. v. Van Brunt, Adv. Proc. No. 07-51602 (Bankr. D. Del.

In a recent decision of the United States Bankruptcy Court for the District of Delaware, In re Federal Mogul Global, Inc., No. 01-10578 (JKF) (Bankr. D. Del., Mar. 19, 2008) (click here to read the decision), the court ruled that the assignment of rights in certain insurance policies to an asbestos trust was valid and enforceable under the Bankruptcy Code, and anti-assignment provisions in the policies and applicable state law were preempted.

According to press reports, Tammy Andreycak, a former director of accounting at Le-Nature’s Inc., recently pleaded guilty to multiple fraud charges in the United States District Court for the Western District of Pennsylvania. The charges included bank fraud, wire fraud, conspiracy and filing false income-tax returns, all allegedly taking place between 2003 and 2006. Andreycak is the first person to be prosecuted in the fraudulent scheme alleged to have occurred at Le-Nature’s.

A Pennsylvania state court has reportedly ruled, in an unpublished opinion, that the Pennsylvania Insurance Commissioner may pursue a theory of damages against the accountant of an insolvent insurer based on a legal claim of “deepening insolvency.” SeeArio v. Deloitte & Touche, PICS No. 08-1013 (Pa. Commw. Ct.).

Boards of directors of troubled companies must balance their fiduciary obligations to shareholders and creditors. Insolvent companies owe duties to creditors and not solely to shareholders and, under evolving case law, companies acting in the "zone of insolvency" owe a duty to creditors as well as to shareholders.