Summary
In an opinion published May 20, 2011, Judge Walsh held that a settlement agreement which is rejected in a bankruptcy proceeding is “Core” and will be decided by the Bankruptcy Court, even when it contains a jurisdictional clause that requires the agreement to be interpreted according to the laws of New York. Judge Walsh’s opinion is available here (the “Opinion”).
Background
In a decision entirely consistent with its ruling in the “Perpetual” adversary proceeding last year, on May 12, 2011, the United States Bankruptcy Court in the Lehman chapter 11 cases endorsed a strict interpretation of certain Bankruptcy Code provisions to the benefit of Lehman, which will result in Lehman having more leverage in its negotiations with derivatives counterparties. See Lehman Brothers Special Financing Inc. v. Ballyrock ABS CDO 2007-1 Limited and Wells Fargo Bank, N.A., Trustee, Adv. Proc. 09-01032 (Bankr. S.D.N.Y. May 12, 2011).
The enduring impact of the Great Recession on businesses, individuals, municipalities, and even sovereign nations has figured prominently in world headlines during the last three years. Comparatively absent from the lede, however, has been the plight of charitable and other nonprofit entities that depend in large part on the largesse of donors who themselves have been less able or less willing to provide eleemosynary institutions with badly needed sources of capital in the current economic climate.
Over the past five years, courts have issued rulings of potential concern to buyers of distressed debt. Courts have addressed, among other things, “loan to own” acquisition strategies resulting in vote designation; equitable subordination, disallowance, and other lender liability exposure based upon the claim seller’s misconduct; disclosure requirements for ad hoc committees of debtholders; the adequacy of standardized claims-trading agreements; and claim-filing requirements in the era of computerized records.
Section 108 of the Bankruptcy Code grants a two-year extension of time for a trustee in bankruptcy (or a debtor in possession) to bring law suits, provided that the applicable period to sue didn’t expire before the petition date. It also gives a short extension to the trustee for filing pleadings, curing defaults, and performing other acts on behalf of the debtor. These provisions afford a trustee and debtor in possession valuable time to discover and evaluate potential causes of action and to perform other acts to preserve the debtor’s rights.
Introduction
Last week, Visteon Corporation began filing preference complaints against hundreds of current and former creditors of the company. This post will look briefly at the nature of Visteon’s business, why the company filed for bankruptcy, as well some of the likely “next steps” now that the company has filed its preference complaints.
The Bankruptcy Filing
Introduction
The well known travails of Fred Wilpon, the principal owner of the New York Mets, have all converged this past week. He, his partner Saul Katz and their families and affiliated enterprises (the “Wilpon/Katz Group”) lost several hundred million dollars when Bernard Madoff’s long running Ponzi scheme finally unraveled at the height of the financial crisis in 2008.
Section 503(b) of the Bankruptcy Code delineates categories of claims that are entitled to elevated priority as “administrative expenses.” Under section 503(b)(3)(D), administrative expenses include “actual, necessary expenses” incurred by a creditor, indenture trustee, equity holder, or unofficial committee “in making a substantial contribution” in a chapter 11 case.
A recently proposed rule by the Federal Reserve Board and the Federal Deposit Insurance Corporation would systemically impose significant bank holding companies and nonbank financial companies to submit annual resolution plans and quarterly credit exposure reports.