On June 28th, the Second Circuit held that payments made by Enron to redeem its commercial paper prior to maturity were not avoidable under the Bankruptcy Code. In doing so, the Court answers in the affirmative an issue of first impression among the appellate courts: whether the Bankruptcy Code's safe harbor, 11 U.S.C. Sec. 546(e), which shields settlement payments from avoidance in bankruptcy, extends to an issuer's payments to redeem its commercial paper prior to maturity.

On July 6, 2011 the Federal Deposit Insurance Corporation's ("FDIC's") Board of Directors met in open session, voting unanimously to approve a final rule addressing the claims process and other aspects of the FDIC's orderly liquidation authority under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank").  The Board also discussed the FDIC's progress in preparing final rules with respect to both resolution planning under Dodd-Frank and the FDIC's own proposal, issued prior to the enactment of Dodd-Frank, separately calling for certain large insured de

The US Court of Appeals for the Second Circuit recently held that redemptions of commercial paper made through the Depositary Trust Company (DTC) are entitled to the “safe harbor” protections afforded to settlement payments under Bankruptcy Code Section 546(e), and are, therefore, not preferential transfers, even though such payments were made prior to maturity.1 The Second Circuit is the first Circuit Court of Appeal to address the issue, which arises out of the Enron bankruptcy case.

Legal Framework

Since it was issued three years ago by the Ninth Circuit Bankruptcy Appellate Panel, the Clear Channel decision (Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. B.A.P. 2008)) has been widely criticized as “an aberration in well-settled bankruptcy jurisprudence.” Before Clear Channel, conventional wisdom (and what most people perceived to be the law) supported the notion that a bankruptcy sale order that contained a good faith finding under Section 363(m) could not be disturbed on appeal.

On June 21, 2011, the Fifth Circuit Court of Appeals ruled in In re Evans Industries, Inc., that a purchaser of assets from a bankrupt company cannot make a claim against a holdback escrow account for expenses incurred while cleaning up hazardous waste that the bankrupt company left behind. Pursuant to an asset purchase agreement, Grief Industrial Packaging and Services purchased five facilities from Evans Industries, Incorporated.

In RGH Liquidating Trust v. Deloitte & Touche, LLP, 2011 WL 2471542 (N.Y.

The Bottom Line:

The Bottom Line:

The FDIC has recently appealed a loss it suffered at trial on the question of whether the debtor in bankruptcy (the holding company of a failed bank) made a “commitment” to maintain the capital of its subsidiary bank under Section 365(o) of the Bankruptcy Code.  After a week-long bench trial with an advisory jury, the Northern District of Ohio rejected the FDIC’s claim that a commitment had been made by the holding company to the Office of Thrift Supervision.  The F

The Seventh Circuit recently held that a chapter 11 bankruptcy plan of liquidation is not confirmable over a secured lender's objection if such plan prohibits the lender from credit bidding at a sale of its collateral. In doing so, the Seventh Circuit split with the Third and Fifth Circuit Courts of Appeal which have confirmed plans that block secured creditors' rights to credit bid, potentially making the issue ripe for review by the United States Supreme Court.