In the recent decision in In Re Duckworth (March 22, 2012), the Chief Bankruptcy Judge for the Central District of Illinois issued a decision that may have far reaching effects on some lenders using automated loan documentation software1. In this case, the State Bank of Toulon (the “Bank”) generated loan documents for a $1.1 million agricultural loan.
On April 19, 2012, the Lehman bankruptcy court handed down its decision on the long-pending motion to dismiss filed by JPMorgan Chase Bank, N.A., in response to Lehman Brothers Holdings Inc.’s $8.6 billion avoidance action against it. The action sought to recover the value of collateral taken by JP Morgan in its role as principal clearing bank to Lehman in the run-up to the Lehman insolvency.
The U.S. Supreme Court will soon rule on a case of farreaching importance for any party affected by a Chapter 11 plan in a business bankruptcy case. At stake is the longstanding expectation of secured lenders that they'll either be repaid or permitted to take their collateral by means of a credit bid; in other words, paying for the collateral with their lien.
The proliferation of limited recourse financings popularized in the commercial mortgage backed securities (CMBS) loan market through the financial innovation of loan securitization may be in jeopardy following the decision of the Michigan Court of Appeals in Wells Fargo, N.A. vs. Cherryland Mall Limited Partnership.1 If the Michigan decision is widely followed, an array of unanticipated consequences may arise that could have profound effects on the debt capital markets generally and on single purpose entity (SPE) borrowers in particular.
On March 20, the Federal Deposit Insurance Corporation (FDIC) proposed a rule (Proposed Rule), with request for comments, that implements section 210(c)(16) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act or the Act) , which permits the FDIC, as receiver for a financial company whose failure would pose a significant risk to the financial stability of the United States (a covered financial company), to enforce contracts of subsidiaries or affiliates of the covered financial company despite contract clauses that purport to terminate, accelerate, or provide
Summary
On June 28, 2011, the Seventh Circuit Court of Appeals decided In re River Road Hotel Partners, LLC v. Amalgamated Bank, 651 F. 3d 642 (7th Cir. 2011). The Court addressed Section 1129 (b)(2)(A) of the United States Bankruptcy Code in connection with a Plan of Reorganization to sell substantially all of the Debtor's assets. The Court held that the indubitable equivalent prong, (i.e., the "cram down" provisions of section 1129(b)(2)(A)(iii)) could not be used to preclude a secured creditor from credit bidding its claim under sections 363(k) and 1129(b)(2)(A)(ii) of the Code.
IN RE: RIVER EAST PLAZA, LLC (January 19, 2012)
When River East Plaza LLC defaulted on its mortgage in early 2009, LNV Corp., which held the first mortgage, started foreclosure proceedings. Shortly before the scheduled sale of the property, River East filed for bankruptcy. In its plan, it proposed to exchange LNV's lien for one that was an "indubitable equivalent" under section 1129(b)(2)(A)(iii). Bankruptcy Judge Wedoff (N.D. Ill.) rejected the plan and dismissed the petition. River East brought a direct appeal under section 158(d)(2)(A).
Taking the lead from its recent decision in In re River Road Hotel Partners,1 in In re River East Plaza, LLC,2 the Seventh Circuit held that a debtor cannot avoid the lien retention prong of Section 1129(b)(2)(A)(i)3 by transferring an undersecured creditor’s lien to substitute collateral as indubitable equivalence pursuant to Section 1129(b)(2)(A)(iii).
The Issue
The issue is whether a Chapter 11 plan can be crammed down over the secured lender’s objection where the plan provides for the sale or transfer of the secured lender’s collateral with the proceeds going to the secured lender without the secured lender having the right to credit bid for is collateral up to the full amount of its claim.