Sprint Nextel Corporation v. U.S. Bank N.A. (In re TerreStar Networks, Inc.), Case No. 10-15446 (Bankr. S.D.N.Y., Aug. 19, 2011)
CASE SNAPSHOT
New bankruptcy forms and rules that took effect December 1, 2011, require secured creditors either to attach evidence of perfection of their security interest to the proof of claim form that they file, or attach a statement of why the documents are not available.
On November 29, 2011, AMR Corporation, the parent company of American Airlines and American Eagle, and certain of its U.S. affiliates, including American Airlines and American Eagle, filed voluntary petitions for chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York.
A “fraudulent conveyance” connotes to the layperson an intentional effort to defraud someone, but in bankruptcy law this is just one type of fraudulent conveyance. Another type, sometimes referred to as constructive fraud, involves a transfer for less than “reasonably equivalent value” or, in other words, a “gift.” In bankruptcy proceedings, a trustee is chosen to administer the debtor’s estate and, to the extent feasible, to “avoid” transfers of the debtor’s assets out of the estate that place assets beyond the creditors’ reach.
New amendments to the Bankruptcy Rules became effective on December 1, 2011. These amendments add new requirements and potentially harsh penalties for failure to comply. An overview of those amendments follows.
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The U.S. Court of Appeals for the Second Circuit, on Dec. 2, 2011, ruled in favor of SRZ client Alfa, S.A.B. de C.V., denying Enron’s petition for rehearing in Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., 651 F.3d 329 (2d Cir. 2011). The court had previously ruled against Enron more than five months ago, holding that its redemptions of commercial paper were “settlement payments” and thus not voidable as preferential or fraudulent transfers under Bankruptcy Code § 546(e), one of the code’s so-called “safe harbor” provisions.
In general, a company has two bankruptcy alternatives: liquidation under Chapter 7 and reorganization under Chapter 11.
Under Chapter 7, upon the filing of a bankruptcy petition, a trustee is appointed to gather and sell all of the debtor’s assets as quickly as possible. Once the trustee liquidates all of the assets, it must pay creditors in accordance with the priority scheme mandated by the Bankruptcy Code:
Highly anticipated changes to Rule 2019 of the Federal Rules of Bankruptcy Procedure became effective on December 1, 2011. Rule 2019 mandates certain disclosures concerning the economic interests of creditors and interest holders in bankruptcy cases. Whether these disclosure requirements apply to ad hoc, or informal, creditor groups has been the subject of vigorous dispute in the bankruptcy courts during the last four years, with courts lining up on both sides of the divide in roughly equal numbers.
On April 26, 2011, the Supreme Court of the United States adopted amendments to Rule 2019 of the Federal Rules of Bankruptcy Procedure (Amended Rule 2019) and submitted the proposed amendment to Congress for approval. Amended Rule 2019 was approved by Congress and became effective on December 1, 2011. The rule governs certain disclosure requirements for groups consisting of multiple creditors or equity security holders acting in concert in Chapter 9 or Chapter 11 cases.
In its recent decision ACE Capital Ltd. v. Morgan Waldon Ins. Mgmt., LLC, 2011 U.S. Dist. LEXIS 135902 (W.D. Pa. Nov. 28, 2011), the United States District Court for the Western District of Pennsylvania had occasion to consider the scope of an insolvency exclusion in a professional liability policy.