On 16 December 2010, HM Treasury published a revised draft of the Financial Markets and Insolvency (Settlement Finality and Financial Collateral Arrangements) (Amendment) Regulations 2010 (SI 2010/2993) (the “Amending Regulations”).  

The U.S. Court of Appeals for the Seventh Circuit recently reversed a bankruptcy court’s ruling that a lender failed to perfect its security interest because its UCC financing statement failed to provide sufficient indication of the secured collateral under Article 9 of the Uniform Commercial Code.

The Supreme Court of Ohio recently held that, when debt on promissory note secured by mortgage has been discharged in bankruptcy, the holder of the note may not pursue collection against the maker of note, but the mortgagee has standing to foreclose on the collateral property, and can use the amounts due on the note as evidence to establish that it may collect from the forced sale of the property.

The U.S. District Court for the Eastern District of New York recently held that a confirmable Chapter 13 plan cannot both “vest” title to real property and “surrender” that property to a secured lender, and that the secured lender may refuse to accept the vesting in satisfaction of its claim.

Thus, the Court held that a debtor may not force the transfer of title in collateral to a secured creditor in satisfaction of the secured creditor’s claim, without the consent of the secured creditor.

The U.S. Court of Appeals for the Seventh Circuit recently held that a lender that is on inquiry notice that its security interest in the collateral had been fraudulently conveyed may lose its secured status.

However, the Court also held that the lender's negligence here did not amount to "purposeful avoidance of the truth" sufficient to justify application of the doctrine of equitable subordination, which allows a bankruptcy court to reduce the priority of a claim in bankruptcy.

The Court of Justice of the European Union (CJEU) has just made a pronouncement on three of the most important matters open to interpretation concerning the regime applicable to financial collateral arrangements under Directive 47/2002 of the European Parliament and of the Council of 6 June 2002.

Our legislation prohibits (as unconscionable) clauses that, while not negotiated with consumers, require “collateral disproportionate to the risk assumed” (art. 88(1) of the Spanish Consumer and User Protection Act). Note that this rule has not been the subject of any case law development and that the clause that paradoxically could yield to art.

The Bankruptcy Code provides certain protections to buyers of bankruptcy estate assets and to entities that extend credit or financing to a trustee or chapter 11 debtor-in-possession ("DIP"). However, these safe harbors are available only if a buyer or lender is deemed to have acted in "good faith," a concept that is not defined in the Bankruptcy Code.

Companies that plan to sell goods or services to a debtor in bankruptcy should be aware of a recent case decided by the Court of Appeals for the Eleventh Circuit, holding that a trustee may avoid a debtor’s post-petition transfers of cash collateral if such transfers were made without the consent of the secured party or court order.1

Not necessarily so, according to the recent rulings of Southern District of New York Bankruptcy Judge Allan Gropper in the US$27 billion General Growth Properties Chapter 11 bankruptcy—at least with respect to the issue of substantive consolidation.