The Issue
On July 18, the City of Detroit filed for protection under chapter 9 of the Bankruptcy Code, making Detroit the largest municipality to file for chapter 9 relief in United States history. Detroit is seeking to restructure approximately $18 billion in accrued obligations, consisting of approximately $11.9 billion in unsecured obligations and $6.4 billion in secured obligations. Prior to the bankruptcy filing, the City offered to pay unsecured creditors a pro rata distribution of $2 billion in principal amount of interest-only, limited recourse participation notes.
Georgia court rejects “replacement lien” as adequate protection.
A federal district court in Georgia recently ruled that a financial institution creditor in a Chapter 11 case had separate, distinct security interests in both the rental property on which it had accepted a mortgage and that property’s rental income by virtue of an assignment of rents from the debtor.
The City of Detroit filed for protection under chapter 9 of the Bankruptcy Code on July 18, 2013,1 becoming the largest municipality to ever file for bankruptcy. Detroit’s bankruptcy filing presents numerous complicated issues, which will be resolved over the course of the case.
On July 22, a Connecticut bankruptcy attorney and a firm with whom the attorney contracts for legal support services filed a lawsuit charging the CFPB with “grossly overreaching its authority” in requesting “sensitive and privileged information” about thousands of consumers and challenging the constitutionality of the Bureau itself.
The absolute priority rule ordinarily prevents a Chapter 11 debtor from distributing any money or property to junior creditors and old equity investors unless all senior creditors have first been paid in full. See 11 U.S.C. § 1129(b)(2)(B)(ii). Nevertheless, old equity investors may attempt to receive new equity in the reorganized debtor in consideration for providing new (post-bankruptcy) investments in the debtor.
Second Circuit’s Quebecor bankruptcy decision offers comfort to capital markets participants that certain transactions will qualify for the Section 546(e) safe harbor.
A. Background to Chapter 9 Filing
CASE SNAPSHOT
When the Fifth Circuit, in a case of first impression for that circuit and all of its sister circuit, last year ruled in In re Chilton, 11-40377, 2012 WL 762924 (5th Cir. Mar. 12, 2012) that inherited IRAs constituted retirement funds within the “plain meaning” of §522 of the Bankruptcy Code and were thus exempt from the bankruptcy estate, under § 522(d)(12) (the federal exemptions), many thought the issue was settled.