Can the owners of a company retain their equity interests in a Chapter 11 reorganization plan? The answer to this question is often critical in determining whether a Chapter 11 bankruptcy proceeding is a desirable option for the company's owners. If the company is unable to pay its creditors in full, then the absolute priority rule prohibits owners from retaining their interests under a reorganization plan unless the owners contribute new value to the business that is both substantial and essential to the company's reorganization efforts.
On January 7, 2013, the Judge Robert D. Drain of the United States Bankruptcy Court for the Southern District of New York held that a dispute concerning the debtors’ use of cash collateral was not subject to arbitration, notwithstanding a broad arbitration clause in the parties’ underlying agreement, because the decision to allow a debtor to use cash collateral constituted a “core” issue and was a fundamental aspect of the bankruptcy process. In re Hostess Brands, Inc., No. 12-22052 (RDD), 2013 WL 82914 (Bankr. S.D.N.Y. Jan. 7, 2013).
Background
Overview
Criminal defendants facing onerous restitution obligations as part of their sentence might contemplate a bankruptcy filing, in the hope of staving off the restitution obligation. In a case of first impression, the Second Circuit recently considered whether the Bankruptcy Code’s automatic stay provision halts a defendant’s obligation to pay restitution and firmly closed the door on that potential gambit.
Recent Second Circuit and Ninth Circuit opinions highlight the dispute over whether or not the Bankruptcy Code authorizes allowance of claims for post-petition legal fees incurred by unsecured creditors. Specifically, while not all Circuits agree, in the wake of the 2007 United States Supreme Court decision Travelers Casualty & Surety Co. of North America v. Pacific Gas & Electric Co., 549 U.S.
Tax-qualification requirements generally prohibit plan sponsors from eliminating optional methods of distribution under a retirement plan. This “anti-cutback” requirement is subject to only a limited number of exceptions. A recent modification to this rule adds a new exception for single-employer defined benefit plans maintained by employers in bankruptcy. Such employers may amend their plans to eliminate lump-sum distribution options if certain conditions are met.
The Anti-Cutback Rule
Introduction
A recent case1 decided by Judge Stuart Bernstein of the United States Bankruptcy Court for the Southern District of New York demonstrates that a developer's properly crafted chapter 11 plan of reorganization can effectively "restore" trust funds that it previously had "diverted" under the New York Lien Law.
Most people think of an oil and gas mineral “lease” as, so named, a lease. However, this common thinking is not necessarily accurate, both with respect to state and federal law and in particular in the bankruptcy courts in the United States.
Under prior law, a municipality could file a petition and prosecute to completion bankruptcy proceedings under federal law, subject to certain requirements.