One of the significant changes brought about by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") was the treatment of loans secured by automobiles in Chapter 13 cases. Prior to BAPCPA, debtors were permitted to "cram down" the secured portions of automobile loans to the fair market value of the collateral. This often resulted in significant reductions to claims secured by automobiles.
In a May 23, 2008 decision, the United States Bankruptcy Court for the District of Delaware ruled that BBB-rated mortgage-backed notes are eligible for the Bankruptcy Code's repurchase agreement safe harbor as “interests in mortgage loans”. The court also held that a repurchase agreement constituted a sale, as opposed to a financing governed by UCC Article 9 -- the first decision on this topic since the financial contract safe harbors were expanded under the 2005 amendments to the Bankruptcy Code.
On April 9, 2008, the US Bankruptcy Court for the District of Delaware issued its opinion in Miller v. McDonald, et al., 2008 WL 1002035 (Bkrtcy.D.Del.), in which it held that the general counsel of a public company had a duty to implement a system that would provide reasonable monitoring to prevent corporate wrongdoing. The court found that the general counsel’s duty arose from two sources. First, Delaware law imposes a duty on directors and senior officers to implement a system that would provide reasonable monitoring of corporate activity.
A federal bankruptcy judge has ordered Wells Fargo to pay $250,000 in sanctions for its role as a trustee for a pooled subprime mortgage trust. In re: Nosek, Case No. 02-46025-JBR (Bankr. D. Mass.).
Adjustable rate mortgages began to reset just as the economic outlook for subprime borrowers soured. Defaults on subprime debt inevitably followed. The onslaught of litigation against all players in the subprime lending arena followed just as inevitably.
Boards of directors of troubled companies must balance their fiduciary obligations to shareholders and creditors. Insolvent companies owe duties to creditors and not solely to shareholders and, under evolving case law, companies acting in the "zone of insolvency" owe a duty to creditors as well as to shareholders.
The U.S. Court of Appeals for the Fifth Circuit reversed a bankruptcy court’s equitable subordination order on June 20, 2008. Wooley v. Faulkner (In re SI Restructuring, Inc.), ____ F.3d __, 2008 WL2469406 (5th Cir. 2008). According to the court, subordination of the insiders’ secured claims was “inappropriate” because the bankruptcy trustee had failed to show that the defendant insiders’ “loans to the debtor harmed either the debtor or the general creditors.” Id., at *1. The court also rejected the trustee’s “deepening insolvency” argument on the facts and as a matter of law.
In Mukamal v. Bakes,1 the trustee of two trusts created under a chapter 11 plan of reorganization filed a complaint (the “Complaint”) against the former directors and officers of the debtors, the dominant shareholders of the debtors and the debtors’ accounting firm, alleging, among other things, various breaches of fiduciary duties.
On May 23, 2008, in American Home Mortgage Investment Corp. v. Lehman Bros. Inc.(In re American Home Mortgage Corp.),1 the United States Bankruptcy Court for the District of Delaware ruled that BBB-rated mortgagebacked notes are eligible for the Bankruptcy Code’s repurchase agreement safe harbor as “interests in mortgage loans”.
On April 9, 2008, in the M. Fabrikant & Sons, Inc. bankruptcy case pending in the Southern District of New York, Chief Judge Stuart M. Bernstein held that a seller of bank debt under the standard LSTA claims transfer documents transfers all of its rights except for those explicitly retained, including unmatured contingent claims, thus giving broad construction to the term “Transferred Rights” under the standard LSTA trade documents.