On August 29, 2014, Judge John T.
Bankruptcy Remote? Maybe Not
Lenders typically have extensive requirements for what inventory will be deemed “eligible” and included in a borrower’s borrowing base for purposes of determining how much the lender is required to lend. One of those typical requirements is that the inventory be owned by the borrower and located at a borrower location in the United States of America, where it will be subject to the Uniform Commercial Code and amenable to an Article 9 security interest.
Several recent legal and regulatory developments in the U.S. will likely alter the makeup of the group of arrangers and financiers willing to arrange and provide financing for certain highly leveraged transactions, and also provide guidance to those considering a loan-to-own or related acquisition strategy, in order to help avoid potential pitfalls.
Revised Leveraged Lending Guidance
In re Demers, 511 B.R. 233 (Bankr. D. R.I. 2014) –
A chapter 13 debtor objected to the portion of a mortgagee’s claim consisting of expenses related to foreclosure of its mortgage. She argued that since the mortgagee failed to comply with notice requirements under the mortgage, the foreclosure expenses were not valid.
In 1999, the Wisconsin Supreme Court decided Mann v. Badger Lines, Inc. (In re Badger Lines, Inc.), 224 Wis. 2d 646, 590 N.W. 2d 270 (1999), in which it addressed a question certified to it by the Seventh Circuit Court of Appeals: Does Wisconsin law require that a lien obtained by a judgment creditor who institutes supplementary proceedings under Wisconsin Statutes section 816.04 be perfected, and if so, how is the lien to be perfected?
Banks, insurance brokers, and other agents can breathe a sigh of relief as the Fourth Circuit enabled the “mere conduit” defense to survive another day. The Fourth Circuit has long recognized the proposition that an avoidable transfer cannot be recovered, pursuant to section 550(a)(1) of the Bankruptcy Code, from a transferee who acted as a “mere conduit” for another party having the direct business relationship with the debtor.
Reaffirmation agreement becomes effective upon filing with the Court if represented by an attorney and not presumed an undue hardship. Per the reaffirmation agreement language set out in the Code, “…No court approval is required if your reaffirmation agreement is for a consumer debt secured by a mortgage, deed of trust, security deed, or other lien on your real property, like your home.” § 524(k)(3)(J)(i)7.
The Wisconsin Supreme Court issued a pair of decisions in July of 2014 that will make life for judgment creditors much more complicated. On July 15, 2014, the court issued Attorney’s Title Guaranty Fund, Inc. v. Town Bank, 2014 WI 63, ¶ 25, ___ Wis. 2d _____ and Associated Bank N.A. v. Collier, 2014 WI 62, ¶ 23-25, 38, ____Wis. 2d ______. These cases change the way judgment creditors must act to obtain a priority interest in the personal property of a debtor.