Contrary to the Bankruptcy Court’s ruling, the District Court concluded that California's liquidated damages statute does not apply to the default interest rate provision.

This is a favorable decision for commercial secured lenders. Although the ruling is not controlling on other bankruptcy courts as it is a trial court level ruling, courts may certainly consider it when presented with similar issues.

In In re 1111 Myrtle Avenue Group, LLC (Bankr. S.D.N.Y. 2019), a New York bankruptcy court held that a default interest rate provision of 7 percent was enforceable and not a penalty against a debtor, which retained significant equity postbankruptcy.

Background

The Revel decision provides a cautionary tale for purchasers under Section 363.

If you are a landlord where the tenant company goes into liquidation you should consider your options carefully before taking any action.

In such a case, the liquidator is able to disclaim “onerous property,” which is likely to include a lease at an open market (or similar) rent. The effect of the disclaimer is to bring the liability of the tenant company to an end as well as ending its interest in the property.

In re Altadena Lincoln Crossing LLC, 2018 Westlaw 3244502 (Bankr. C.D. Cal.), a California bankruptcy court held that a default interest rate provision was an unenforceable penalty under applicable California law because, among other things, the applicable loan agreements did not contain an estimate of the probable costs to the lender resulting from the debtor’s default.

Background

In a matter of first impression, the U.S. Bankruptcy Court for the Northern District of New York recently analyzed whether a debtor may exempt from her bankruptcy estate a retirement account that was bequeathed to her upon the death of her parent. In In re Todd, 585 B.R. 297 (Bankr. N.D.N.Y 2018), the court addressed an objection to a debtor’s claim of exemption in an inherited retirement account, and held that the property was not exempt under New York and federal law.

In Kaye v. Blue Bell Creameries (In re BFW Liquidation), 899 F.3d 1178 (11th Cir. 2018), the U.S. Court of Appeals for the Eleventh Circuit found that a liability for an allegedly preferential transfer may be reduced by the amount of new value given, regardless of whether that new value has already been repaid by the debtor before its bankruptcy filing.

The British Property Federation has produced a document to codify CVA best practice with a view to giving guidance to insolvency practitioners on key items landlords will look for in a CVA proposal.

The document is available on the BPF's website and can be found here.

On June 4, 2018, the U.S. Supreme Court issued its opinion in Lamar Archer & Cofrin LLP v. Appling,[1] resolving a circuit split on the issue of whether a debtor’s statement about a single asset constitutes “a statement respecting the debtor’s financial condition” for the purposes of 11 U.S.C. § 523(a)(2).

Alerts and Updates

The Supreme Court’s opinion is significant because it will encourage creditors to rely on written, rather than oral, statements of debtors as to both their assets and overall financial status, which are better evidence in a nondischargeability case.