On July 28, 2008, the Federal Deposit Insurance Corporation (“FDIC”) published for comment a proposed rule that would require certain troubled depository institutions to maintain records of their qualified financial contracts (“QFCs”) in order to provide the FDIC with basic information when the agency is appointed as receiver. 73 Fed. Reg. 43635. Comments on the proposed rule must be received by the FDIC by September 26, 2008.

In the case of Florida Dept. of Revenue v. Piccadilly Cafeterias, Inc.,¹ the United States Supreme Court ruled that the exemption from the payment of stamp taxes or similar taxes on transfers of property of a Chapter 11 debtor’s estate, contained in section 1146(a) of the Bankruptcy Code,² does not apply to transfers of property made before a Chapter 11 plan is confirmed.

In 2006, the Colorado Legislature passed HB 06-1387, which produced significant changes to Colorado’s foreclosure laws. Although the majority of the changes were to take effect July 1, 2007, the 2007 Legislature passed HB 07-1157, which made additional changes and pushed back the effective date for many of the 2006 modifications to January 1, 2008. This alert summarizes the most significant changes that will affect both lenders and borrowers and provides a revised timeline for the foreclosure process after January 1, 2008.

SUMMARY OF CHANGES 

The hurdles for KERP programs have been raised too high, causing debtors to lose critical personnel to the detriment of post-petition operations, say Frost Brown Todd’s Ronald Gold and Doug Lutz in our series of chats with high-profile bankruptcy lawyers.

Q. What’s the most challenging bankruptcy you’ve worked on, and why?

In a decision in In re Enron Corp., et al., 2007 U.S. Dist. LEXIS 63129, No. 05-01025 (S.D.N.Y. August 27, 2007), the Honorable Shira Scheindlin, United States District Judge for the Southern District of New York, held that the sale of a claim that is subject to equitable subordination under section 510(c) or disallowance under section 502(d) of the Bankruptcy Code may insulate the claim from subordination and disallowance when asserted against the buyer of the claim. At first blush the decision may be, and has been, read by some to offer relief and clarity to distressed debt investors.

For some participants in the debt and credit markets, insider trading risks seem like a problem for someone else. There is some statistical basis for that assumption; the law of insider trading has been developed largely through cases involving the equity markets. There is no basis, however, for a sense of immunity. The Securities and Exchange Commission’s recent settlement involving Barclays Bank PLC and Steven J. Landzberg, a former proprietary trader for Barclays’ U.S.

Directors and officers of Delaware corporations face no liability to corporate creditors from direct claims for breach of fiduciary duty, under the Delaware Supreme Court’s recent ruling in North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, (May 18, 2007) (“North American Catholic”).

A recent bankruptcy court decision in the Southern District of New York may raise concern among brokerage firms who execute and clear brokerage transactions for hedge funds and similar investment vehicles. The bankruptcy trustee of the Manhattan Investment Fund (which the court found to be a Ponzi scheme and whose principal Michael Berger pled guilty to criminal charges) obtained summary judgment against Bear Stearns requiring it to return to the bankruptcy estate all the margin payments the fund had made in the year before it imploded, totaling $141.4 million.

Investors who hold both debt and equity in a financially distressed company may be confronted with efforts to have their debt investments recharacterized as equity. Recharacterization is an equitable remedy that bankruptcy courts have used as a basis to look past the form and characterization of an obligation as debt and find the subject obligation to be equity. In his recent decision in Official Comm. of Unsecured Creditors of Radnor Holdings Corp. v. Tennenbaum Capital Partners, LLC (In re Radnor Holdings Corp.), Adv. Proc. No. 06-50909 (Bankr. D. Del.