The Bank's Restructuring Proposal
A look at the recent restructuring of the Co-operative Bank and EU proposals for mandatory reform
The Co-operative Bank announced in mid-June that it would need to carry out a forced listing of £300m new shares on the London Stock Exchange to fill a capital hole of around £1.5bn. Co-op's difficulties are said to have been triggered by mounting losses at Britannia Building Society - which Co-Op acquired in 2009 - that were highlighted when the bank failed to follow through on its planned acquisition of 632 Lloyds branches in February this year.
The UK's bank regulatory and insolvency law structures were unprepared for the global financial crisis. As a result, the UK government's response to intense bank stress in the immediate aftermath of the crunch led to a number of somewhat unsatisfactory ad hoc solutions ranging from nationalisations to encouraging otherwise healthy institutions to take over weaker banks. Generally speaking, there was a criticism, fairly made perhaps, that profits were privatised and losses had been socialised.
In Ogle v. Fidelity & Deposit Co. of Maryland, 586 F.3d 143 (2d Cir. 2009), the Second Circuit has now become the second circuit court of appeals to recently conclude that general unsecured creditors may include postpetition attorneys’ fees as part of their claim when attorneys’ fees are permitted by contract or applicable state law.11
In a Bracewell & Giuliani client alert dated December 7, 2009 (which can be found here), we reported on a decision ("WaMu I") from Judge Walrath of the Delaware Bankruptcy Court that required a group of bondholders of Washington Mutual, Inc. ("WMI") to comply fully with the disclosure requirements of Bankruptcy Rule 2019.
A recent bankruptcy New York court decision1 highlights a less commonly used option for lenders to take control of troubled real estate projects. The lender obtained relief from the automatic stay to foreclose on membership interests pledged to secure its mezzanine loan instead of foreclosing on its mortgage against the underlying real property.
Here is the case, and what lenders can learn from it.
The Case
On May 20, 2010 the Senate passed the Restoring American Financial Stability Act of 2010 (the "Senate Bill") 59-39, only hours after the cloture vote ended debate on the bill. The House passed its version—the Wall Street Reform and Consumer Protection Act of 2009 (the "House Bill")—in December 2009. The primary stated focus of the Senate and House Bills is to prevent the failure of the "too big to fail" institutions and to avoid government (taxpayer) bailouts in the future.
In a decision filed on July 7th, the United States Court of Appeals for the Third Circuit affirmed a district court decision upholding a bankruptcy court order granting summary judgment to American Home Mortgage Investment Corp. (American Home) in connection with a repurchase transaction entered into in 2007 under which American Home sold certain certificates to Bear Stearns International Ltd. (Bear Stearns) for $19,534,000 and agreed to re-purchase the certificates at a later date for $19,636,879.07. In re American Home Mortgage Holdings, Inc., 2010 WL 2676383 (3d Cir.
Preservation of favorable tax attributes, such as net operating losses that might otherwise be forfeited under applicable nonbankruptcy law, is an important component of a business debtor's chapter 11 strategy. However, if the principal purpose of a chapter 11 plan is to avoid paying taxes, rather than to effect a reorganization or the orderly liquidation of the debtor, the Bankruptcy Code contains a number of tools that can be wielded to thwart confirmation of the plan.
Introduction