Lenders are often counseled about fraudulent conveyance risks when they engage in financing transactions. It is usual, customary and the norm for steps to be taken to attempt to reduce such risks, including obtaining solvency and fairness opinions and using so-called savings clauses in loan documents. These undertakings and features notwithstanding, when a borrower or guarantor files a chapter 11 petition, often fraudulent conveyance claims are threatened, used as leverage, and settled within the context of a plan of reorganization.
In Rainy Sky S.A and six others v Kookmin Bank [2011] UKSC 50, the Supreme Court provided useful guidance on the role of business common sense in construing a clause in a commercial contract, particularly in circumstances where there are competing plausible constructions, neither of which is clearly preferable on the language used alone.
The facts
Applying Texas law, the United States Bankruptcy Court for the Northern District of Texas has held that a primary insurer that "exhausted" its policy limits by agreeing to pay the insured's bankruptcy estate its remaining policy limits, while stipulating that a significant portion of this payment would be returned to the insurer by the estate's bankruptcy trustee, was required to reimburse the excess insurer the value of the returned payments made by the trustee. Yaquinto v. Admiral Ins. Co., Inc. (In re Cool Partners, Inc.), 2010 WL 1779668 (Bankr. N.D. Tex. Apr. 30, 2010).
The United States District Court for the District of Colorado, applying Colorado law, has denied an insurer's motion for summary judgment and granted in part motions for partial summary judgment by the policyholder's former CEO and a bankruptcy trustee as assignee of the policyholder's former directors. Genesis Ins. Co. v. Crowley, 2007 WL 1832039 (D. Colo. June 25, 2007).
On September 15, 2009, the United States Bankruptcy Court of the Southern District of New York ordered Metavante Corporation (“Metavante”) to make payments to Lehman Brothers Special Financing Inc. (“LBSF”) under a prepetition interest rate swap agreement guaranteed by Lehman Brothers Holdings Inc. (“LBHI” and, together with LBSF, “Lehman”) after Metavante had suspended ordinary course settlement payments under the swap.1 Metavante claimed a contractual right to withhold payment under Section 2(a)(iii) of the 1992 ISDA Master Agreement as a result of Lehman’s bankruptcy.
Last week the Court of Appeal of England and Wales handed down its decision in four appeals which raise a number of questions of construction in relation to derivatives in the form of interest rate swaps and forward freight agreements documented under the International Swaps and Derivatives Association Inc. Master Agreement (the “ISDA Master Agreement”).1 In particular, the decision focuses on the interpretation of section 2(a)(iii) of the ISDA Master Agreement.
Key Points
In a recent ruling from the bench, Judge James M. Peck of the United States Bankruptcy Court for the Southern District of New York held that Metavante Corporation’s suspension of payments under an outstanding swap agreement with Lehman Brothers Special Financing Inc.
In a recently filed motion in the United States Bankruptcy Court Southern District of New York (the “Motion”), Lehman Brothers Holdings Inc. (“LBHI”) is seeking to compel Metavante Corporation (“Metavante”) to perform its obligations under a swap agreement between Metavante and Lehman Brothers Special Financing Inc.
A recent Alberta case1 has addressed the proposed use of a plan of arrangement under theCanada Business Corporations Act (“CBCA”) where proceedings under insolvency statutes may be more appropriate. In Connacher Oil, Connacher Oil and Gas Limited (“Connacher”) and 9171665 Canada Ltd.
The Seventh Circuit affirmed a district court’s ruling that a debtor-in-possession (“DIP”) lender had breached its financing agreement, barring its claim for commitment and funding fees from the DIP. Arlington LF, LLC v. Arlington Hospitality, Inc., No. 09-3560, 2011 WL 727981, *9 (7th Cir. March 3, 2011), aff’g No. 08 C 5098, 2011 WL 3055350 (N.D. Ill. Sept. 18, 2009). Although the DIP itself had also breached the agreement, that breach was not, in the court’s view, effective until after the lender had already “walked away.” Id. at *6.