A recent federal district court appellate decision issued in the Enron chapter 11 case1 has ruled that the postpetition transfer of a prepetition bankruptcy claim from one party to another may insulate the transferred claim against certain types of attack based solely on conduct by a prior holder of the same claim. Whether a particular claim is protected depends upon how the claim was transferred.
The United States Bankruptcy Court for the Southern District of New York granted preliminary injunctions ordering a directors and officers liability insurer to advance defense costs, despite the fact that the insurer had denied coverage, and without adjudicating the coverage defense. Axis Reinsurance Co. v. Bennett et al., Adv. No. 07-01712 (S.D.N.Y. Bankr. Aug. 31, 2007); Grant v. Axis Reinsurance Co., Adv. No. 07-2005 (S.D.N.Y. Bankr. Sep. 11, 2007). The bankruptcy court applied New York law and relied heavily on the case In re WorldCom, Inc.
Thinking about investing in a distressed company? If the company declares bankruptcy, your investment may be subject to equitable subordination, whereby your claim is subordinated to the claims of other creditors. One of the most crucial factors in determining whether your claim is equitably subordinated is whether you are deemed an insider as an insider’s actions undergo significantly more scrutiny than those of non-insiders. Of course, when investing in a distressed company, the more control over the entity’s, the better, right?
Saddleback Valley Community Church v. El Toro Materials Company, Inc. 2007 U.S. App. LEXIS 22991 (October 1, 2007) Client Alert
In a decision that should provide comfort to landlords confronting insolvent tenants, the Ninth Circuit recently ruled that the Bankruptcy Code’s limitation on the amount of damages a landlord is entitled to recover upon termination of a lease does not limit the landlord’s right to recover damages which are not based upon the loss of future rental income.
On October 3, 2007, legislation was introduced in the U.S. Senate to amend provisions of the U.S. Bankruptcy Code that currently prevent homeowners from using bankruptcy to modify mortgage loans secured by their primary residence. Proponents of the legislation believe that permitting homeowners to modify mortgage loans in bankruptcy will encourage lenders to engage in voluntary modifications prior to bankruptcy.
The hurdles for KERP programs have been raised too high, causing debtors to lose critical personnel to the detriment of post-petition operations, say Frost Brown Todd’s Ronald Gold and Doug Lutz in our series of chats with high-profile bankruptcy lawyers.
Q. What’s the most challenging bankruptcy you’ve worked on, and why?
Can a United States bankruptcy court deny recognition of a foreign insolvency proceeding even if no one opposes such recognition? In a recent decision, Judge Burton Lifland, a highly respected bankruptcy judge and one of the authors of Chapter 15 of the Bankruptcy Code, says yes.
Liquidators of Bear Stearns Funds Seek Relief under Chapter 15
A federal court in California recently has thrown its weight behind a majority rule that holds that letter of credit proceeds should be applied to damages resulting from the rejection of a lease of non-residential real property. In re Connectix Corp., No. 05-556848, 2007 WL 2137802 (Bankr. N.D. Cal. May 10, 2007). The court also addressed the formula the parties should employ to arrive at a damages figure.
A company attempting to reorganize its affairs in bankruptcy may seek to enjoin its creditors or other third parties from suing members of the company's senior management team during the course of the reorganization proceedings, so that the senior management members can devote their time and resources to the reorganization effort without distraction. Courts throughout the country have applied differing standards in determining when the granting of an injunction of proceedings against a non-debtor is appropriate.
The Court of Appeals for the First Circuit recently held that an oversecured lender holds at least an unsecured claim for contractual prepayment penalties against a solvent debtor. UPS Capital Business Credit v. Gencarelli (In re Gencarelli), 2007 BL 91656 (1st Cir., Aug. 30, 2007). As the court explained, "[t]his is a difficult question that has significant ramifications for the commercial lending industry." Id. at 16.