The United States District Court for the District of Connecticut, applying Connecticut law, has held that coverage under a bankers professional liability policy was precluded by the policy's insolvency exclusion where the underlying claims "arose out of" the bankruptcy of a third-party securities broker or dealer. Associated Community Bancorp, Inc. v. The Travelers Cos., 2010 WL 1416842 (D. Conn. Apr. 8, 2010). The court also held that coverage was barred by the professional services exclusion of the management liability coverage part of the policy.

Liquidations of struggling enterprises can take several forms. While many people are familiar with the concept of a "bankruptcy liquidation," the structure of a liquidation in bankruptcy may vary depending upon the specific type of case. Additionally, bankruptcy is not the only forum for liquidation of distressed companies, only the most common. This article provides a synopsis of some of the various types of liquidations.

Chapter 11 Liquidations

On March 26, 2008, the United States Supreme Court heard oral argument in the case of State of Florida Department of Revenue v. Piccadilly Cafeterias, Inc. to consider the United States Court of Appeals for the Eleventh Circuit's ruling that a bankruptcy court may exempt certain state and local taxes in a sale approved prior to confirmation of a chapter 11 plan under § 1146(c) of the Bankruptcy Code.

Introduction

Section 1146(a) (formerly, and for the purposes of this case § 1146(c)) of the Bankruptcy Code provides:

More than a year and a half has passed since the Bankruptcy Code was significantly revised pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which became effective (with some exceptions) on October 17, 2005. While the full impact of BAPCPA will not be fully realized for years to come, it is already apparent that trade creditors stand to benefit significantly as a result of these amendments.

Expanded Administrative Expense and Reclamation Rights

Buyers of assets through the bankruptcy court process seek comfort and solace in the entry of a sale order providing for the transfer of assets “free and clear” of all liabilities. Except for those liabilities expressly assumed by the buyer and new owner, the bankruptcy court order typically includes exacting and precise language transferring those assets, under the imprimatur of the United States Bankruptcy Court, free and clear of all liabilities.

The Appellate Court of Illinois, First District, Third Division, applying Indiana and federal law, has held that neither a bankruptcy nor an insured versus insured exclusion applied to bar coverage for claims brought by a bankruptcy trustee.  According to the court, the bankruptcy exclusion is unenforceable because coverage arises from a policy that is a property interest of the debtors, and that property interest is protected under Section 541 of the Bankruptcy Code.  The insured versus insured exclusion did not apply, the court held, because the policyholder and a court-appointe

On March 22, 2010, the United States Court of Appeals for the Third Circuit affirmed a lower court decision which held that secured creditors do not have an absolute right to credit bid at an auction of assets conducted in connection with a bankruptcy reorganization plan. The court ruled that secured creditors are only entitled to the "indubitable equivalent" of their claims under a specific subsection of the Bankruptcy Code. The "indubitable equivalent" could be the cash value of the assets upon which the creditor holds liens as determined through an auction process.

When H. Jason Gold was appointed liquidating trustee for the bankruptcy estate of Dornier Aviation (North America), Inc., (DANA) in early 2003, creditors were expected to receive as little as three cents per claim dollar. Despite these daunting prospects, Mr.

Bankruptcy Judge Judith Fitzgerald ruled last week that a debtor's insurance policies are assets of the estate and, therefore, can be properly transferred to a § 524(g) trust notwithstanding any applicable anti-assignment clauses. In re Federal-Mogul Global Inc., 01-10578 (Bankr. D. Del. March 19, 2008).

While investors and lenders brace for the next wave of chapter 11 filings, those who are parties to intercreditor agreements need to take stock on how their relationship with their fellow creditors and the borrower may be impacted by a bankruptcy filing by the borrower. If the borrower is in financial extremes, the primary lender who is secured by all the business assets may be unwilling or unable to extend additional credit to the troubled borrower.