Introduction

In January of this year, George L Miller, the chapter 7 trustee (the "Trustee") in the WL Homes bankruptcy, began filing avoidance actions against various creditors. As alleged in the complaints, the Trustee seeks the recovery of what he deems are "preferential transfers" pursuant to 11 U.S.C. section 547(b) of the Bankruptcy Code. This post will look briefly at the WL Homes bankruptcy, as well as provide information on common issues that arise in preference litigation.

Background on the Bankruptcy Proceeding

On February 1, 2011, AES Thames, LLC ("AES" or "Debtor") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware. According to the Declaration of AES's President in Support of First Day Motions (the "Declaration"), AES owns and operates a coal-fired power plant in Montville, Connecticut.

On February 8, 2011, the Second Circuit Court of Appeals issued an opinion that will have a major impact on Chapter 11 plan confirmation. In consolidated appeals stemming from theIn re DBSD North America, Inc. bankruptcy case, the Second Circuit held that (1) the “gifting” aspect of the debtors’ plan of reorganization violated the absolute priority rule, and (2) the bankruptcy court did not err in designating a secured creditor’s vote as lacking “good faith” and disregarding that vote for purposes of confirmation.

The DBSD Plan

In a 113-page decision issued on February 11 (the "District Court Decision"), the United States District Court for the Southern District of Florida (Gold, J.) delivered a blistering rebuke to the Florida Bankruptcy Court (Olson, J.) when it quashed the portions of the famous / infamous 2009 TOUSA decision (the "Trial Decision") holding the so-called "Transeastern Lenders" liable for fraudulent transfers in connection with T

Introduction

Last year, the Liquidating Trustee (the "Trustee") in the Midway Games bankruptcy began filing avoidance actions against creditors of the bankruptcy estate. Midway Games ("Midway" or the "Debtor") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware on February 12, 2009. For those not familiar with this bankruptcy proceeding, Midway developed and distributed video games throughout the North America, Europe and Asia.

On February 7, 2011, in a highly anticipated decision, the Second Circuit Court of Appeals held that in Chapter 11 reorganizations, senior creditors may not “gift” recoveries to junior creditors and/or equity interest holders over the objection of an intervening class. In In re DBSD N.A., Inc., __ F.3d __, 2011 WL 350480 (2d Cir. 2011), the majority ruled that such “gift plans” run afoul of the “absolute priority rule,” which is codified in Section 1129(b) of Bankruptcy Code. The decision has significant implications for future bankruptcy cases in New York.

The United States Bankruptcy Court for the District of Delaware recently dismissed equitable subordination and fraudulent transfer claims filed by the Official Committee of Unsecured Creditors of Champion Enterprises, Inc. ("Champion") against more than 100 prepetition lenders to Champion (collectively, the "Defendants")1.

The U.S. Court of Appeals for the Second Circuit, on Feb. 7, 2011, held that senior creditors could not “gift” part of their reorganization plan recovery to existing shareholders of the debtor.In re DBSD N. Am., Inc., __ F.3d __, 2011 WL 350480 (2d Cir. Feb. 7, 2011) (2-1) (Lynch, J.) (explainingIn re DBSD N. Am., Inc., 627 F.3d 496 (2d Cir. 2010) (summary opinion)). Its extensive 62-page opinion explained the court’s previous two-page summary ruling of Dec.

Judge Burton Lifland, the bankruptcy judge overseeing the liquidation proceedings of Bernard L.