Governors of three New England states have vowed to monitor Chapter 11 proceedings launched on Monday by Fairpoint Communications, which paid $2.3 billion last year to acquire New England fixed line telephone infrastructure owned previously by Verizon Communications.
A Florida bankruptcy court, on Oct. 13, 2009, issued a 182-page decision after a 13-day trial, among other things, avoiding on fraudulent transfer grounds (a) secured subsidiary guarantees of $500 million and (b) $420 million pre-bankruptcy payments. In re Tousa, Inc., et al., Case No. 08-10928; Adv. P. 08-1435 (S.D. Fla. Oct. 13, 2009). The decision is on appeal to the district court.
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On October 25, commercial real estate financing company Capmark Financial Group Inc., together with over 40 of its affiliates, filed a voluntary petition for chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware. The debtors cite among the reasons for their filing the declined values of their loan portfolio, tightening of credit markets and a heavy debt burden. Capmark, formerly a part of GMAC's residential mortgage business until 2006, listed $20.1 billion in assets and $21 billion in liabilities on its petition.
In Dumont v. Ford Motor Credit Company, the Ninth Circuit Court of Appeals confirms the Bankruptcy Code does not protect a debtor’s personal property collateral if the debtor fails to commit to redeem, reaffirm or assume the underlying loan—even if the debtor continues timely to make loan payments.
United States Supreme Court
Washington, D.C.
November 3, 2009
The bankruptcy court's opinion exemplifies the second guessing that can confront solvency opinion providers and highlights issues that providers should carefully vet with experienced legal counsel.
Lenders are often counseled about fraudulent conveyance risks when they engage in financing transactions. It is usual, customary and the norm for steps to be taken to attempt to reduce such risks, including obtaining solvency and fairness opinions and using so-called savings clauses in loan documents. These undertakings and features notwithstanding, when a borrower or guarantor files a chapter 11 petition, often fraudulent conveyance claims are threatened, used as leverage, and settled within the context of a plan of reorganization.
CIT Group Inc.
In a decision entered July 30, 2009, the Bankruptcy Court for the Eastern District of North Carolina held that a bankruptcy trustee can avoid the lien claim of a subcontractor whose claim derives from a claim of lien on funds asserted under North Carolina state law. The case is In re: Harrelson Utilities, Inc.
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