Section 510(b) of the Bankruptcy Code provides that claims for “damages arising from the purchase or sale of . . . a security” of the debtor or an affiliate of the debtor are subordinated to any claims not based on stock. 11 U.S.C. § 510(b). Because there is rarely enough value in a bankrupt company to satisfy all claims, a determination that a particular claim is subject to mandatory subordination under section 510(b) means that, as a practical matter, the claim is unlikely to receive any distribution from the estate.

The question, “Can we get them to agree not to file bankruptcy in the future?” must be near the top of the list of questions clients most commonly ask their transactions and workout lawyers.

Most lawyers fielding this question are likely to explain that such an agreement is not enforceable under bankruptcy law. Good lawyers then suggest that in certain situations, an agreement for the entry of an order lifting the automatic bankruptcy stay, or an agreement not to oppose a lift-stay motion if the other side files a bankruptcy petition, may be enforceable.

Introduction

In Giant Eagle, Inc. v. Phar-Mor, Inc.,1 the United States Court of Appeals for the Sixth Circuit held that a lessor-claimant whose lease was rejected pursuant to section 365(a) of Title 11 of the Bankruptcy Code was entitled to a claim for future-rent damages against the debtor, even though the lessor had entered into a nearly identical substitute lease. The Court concluded that efforts to mitigate damages by the lessor would not be considered in reducing the actual damage claim when those efforts failed to reduce the actual harm suffered by the lessor.

Your franchisee files bankruptcy; is this good news or bad news? It could be either depending on whether the debtor wishes to keep the franchise in place or plans to let it go. The Bankruptcy Code has special rules on how a debtor can treat this type of agreement where it was entered into prior to the filing of the bankruptcy and remains in effect as of the time the case was filed.

In the very early hours on September 20, 2008, the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") entered an order (the "Sale Order") approving the sale of substantially all of the assets of Lehman Brothers Holdings, Inc. ("Lehman"), LB 745 LLC and Lehman Brothers, Inc. (collectively, the "Lehman Sellers") to Barclays Capital, Inc. free and clear of all liens claims, encumbrances and other interests.

In In re Bryan Road LLC,1 the United States Bankruptcy Court for the Southern District of Florida considered whether a waiver of the automatic stay provision included in a prepetition workout agreement is enforceable in the debtor’s subsequent bankruptcy. The Bankruptcy Court enforced the waiver and held the creditor was not bound by the automatic stay after engaging in a four-factor analysis of the agreement and the circumstances surrounding its execution. The Bankruptcy Court cautioned, however, that relief from stay provisions are neither per se enforceable nor self-executing.

In Aalfs v. Wirum (In re Straightline Investments, Inc.),1 the United States Court of Appeals for the Ninth Circuit considered whether a post-petition factoring of accounts receivable by the debtor was an avoidable transfer under section 549 of the Bankruptcy Code. The Court of Appeals affirmed the Bankruptcy Court, finding that the post-petition transfer had been properly avoided and that the lower court was justified in allowing the trustee both to recover the accounts receivable and their proceeds and to retain the consideration paid by the transferee.

WorldSpace, a key provider of satellite radio services to customers living in ten European, African and Asian nations, filed for Chapter 11 protection last Friday before the U.S. Bankruptcy Court in Wilmington, Delaware, listing assets of $307.4 million against debts of $2.12 billion.

On November 13, 2008, Lehman Brothers Holdings Inc. and its affiliated debtors in Chapter 11 (collectively, “Lehman”) filed a motion (the “Motion”) seeking Bankruptcy Court approval of procedures (the “Procedures”) for the assumption and assignment of derivative contracts not yet terminated by its various counterparties, as well confirmation of Lehman’s right to enter into settlement agreements for the termination of derivative contracts that have been terminated by its counterparties post-petition.