It has long been the case that secured creditors could be charged for the reasonable and necessary costs incurred to preserve the value of their collateral. This equitable principle emerges out of case law that predates not only the current Bankruptcy Code, but also its immediate predecessor, the Bankruptcy Act of 1938. As now codified in section 50
In a decision that surprised many, the United Stated Circuit Court of Appeals for the Tenth Circuit (the “10th Circuit Court of Appeals”) affirmed decisions finding that a payment made on account of a first time transaction between a debtor and creditor can qualify for the ordinary course of business defense under 11 U.S.C. § 547(c)(2).
A recent decision by the Ninth Circuit Court of Appeals (found here) changes the strategic calculus for a secured creditor deciding whether to file a proof of claim in a bankruptcy case in the Ninth Circuit. It has long been true that a secured creditor does not necessarily imperil his lien if he ignores a bankruptcy proceeding and declines to file a claim in connection with his lien. See U.S. Nat’l Bank in Johnstown v.
Bankruptcy courts in the U.S. are widely viewed as favorable fora for debtors, trustees and creditors’ committees to pursue creative and difficult causes of actions against deep-pockets lenders and others in an attempt to augment the resources available for distributions to creditors. In yet another case, however, the District Court for the Southern District of New York (after withdrawing the litigation from the bankruptcy court), recently dismissed many of the claims asserted by the Lehman debtors against J.P. Morgan Chase Bank, N.A.
“Aside from their inconsistency with empirical data, proposals to “reform” the Bankruptcy Code must overcome a more basic reality: The current Code works exceedingly well.”
– LSTA Response
When a portfolio company underperforms, a sponsor may consider various options to address the perceived performance issues, including changes to a portfolio company’s management team, cost structure, capital structure or other parameters, depending on the nature of the issue(s) at hand. When changes in capital structure may be desirable, often in the context of excessive debt and related liquidity issues, a sponsor’s choices may include a consensual workout outside of bankruptcy, or a court-supervised restructuring under Chapter 11 of the U.S.
An insolvent corporate subsidiary’s payment of its parent’s contractual obligations was not a fraudulent transfer when “the [subsidiary] Debtor received reasonably equivalent value in exchange for [its cash] transfers,” held the U.S. Court of Appeals for the Eleventh Circuit on Sept. 4, 2015. In re PSN USA, Inc., 2015 WL 5167803, at *7 (11th Cir. Sept. 4, 2015) (per curiam).
A federal judge in New York – the Hon. Richard J. Sullivan – mostly granted JP Morgan Chase Bank’s motion to dismiss claims brought on behalf of unsecured creditors of Lehman Brothers Holdings Inc. related to JPM’s requirement that Lehman Brothers Inc., LBH’s broker-dealer subsidiary, pledge and post extra collateral in September 2008, shortly before LBI filed for bankruptcy protection on September 15, 2008.
On June 1, 2015, the Supreme Court of the United States decided Bank of America, N.A. v. Caulkett, 135 S. Ct. 1995 (2015) in a unanimous opinion—except for a footnote—authored by Justice Thomas, and determined that a chapter 7 debtor may not void a junior lien under § 506(d) of the Bankruptcy Code even when the debt owed on the senior lien exceeds the present value of the property.
Introduction
Over the last few years, the European leveraged finance market has seen rapid growth of senior secured high yield notes (“SSN”) and senior secured covenant-lite term loan B (“TLB”) financings. A common feature of both SSNs and TLBs (together “Senior Secured Debt”) is that their terms typically permit the incurrence of senior unsecured debt by a borrower and its restricted subsidiaries (a “Credit Group”) subject to either satisfaction of a financial ratio or through various permitted debt baskets.