Although courts are generally reluctant to equitably subordinate claims of non-insiders, the United States Bankruptcy Court for the District of Montana recently did just that to the claims of a non-insider lender based on overreaching and self-serving conduct in Credit Suisse v. Official Committee of Unsecured Creditors (In Re Yellowstone Mt. Club, LLC), Case No. 08-61570-11, Adv. No. 09-00014 (Bankr. D. Mont. May 13, 2009).

In the fourth quarter of 2008, global credit markets were virtually frozen, leading many distressed businesses and their constituents to take measures to avoid bankruptcy filings at almost all costs. Without access to debtor-in-possession (DIP) financing, bankruptcy most often results in liquidation – and with lenders reluctant to provide new money, even in exchange for superpriority and/or priming liens, total collapse became an increasingly common result.

The recent equitable subordination cases of In re Kreisler and Erenberg, 546 F.3d 863 (7th Cir. 2008) and Credit Suisse v. Official Committee of Unsecured Creditors (In re Yellowstone Mountain Club, LLC), Bankr. D. Mont., No. 09-00014 show a possible deviation in the courts regarding the proper application of the doctrine of equitable subordination. Accordingly, secured lenders should stay abreast of these different interpretations and possibly consider adjusting their lending practices.

As the automotive industry continues to restructure, whether through self-liquidation or government intervention, suppliers will inevitably be confronted with many of the same issues prevalent 4-5 years ago, including a supplier’s obligation to continue to provide goods post-petition and the supplier’s rights to adequate assurance as a condition to such shipment.

Introduction

The dearth of credit available for companies in financial distress means an asset sale may be the only way to save the business and jobs. It also presents unusually attractive investment opportunities for public and private companies, private equity and hedge funds, and other investors with capital and an ability to move expeditiously.

Part One of this article, published in the last edition of the Restructuring Review, examined recent developments in the gaming industry, focusing on strategies employed by gaming companies to increase liquidity and avoid insolvency. Part Two focuses on how potential buyers can use the bankruptcy process to purchase gaming facilities, free and clear of prior liens, and describes certain complications inherent in the acquisition of this type of asset.

Acquiring Gaming Facilities through Chapter 11

Sale Process

It seems safe to assume that no lender would extend high-dollar credit without first having a deep knowledge of the party accepting the funds. Certainly, such deep knowledge would include the precise legal name of that borrower. Nevertheless, recent cases continue to demonstrate the prevalence of filing UCC-1 financing statements that may be deemed “seriously misleading” as to the name of the debtor and, therefore, ineffective to fix the secured creditor’s place in the chain of priority.

On October 13, 2009, a Florida bankruptcy judge in the TOUSA, Inc.

The October 15, 2009 decision of the US Bankruptcy Court for the District of Delaware in In re Pillowtex opens the door for creditors in the Third Circuit to increase their "new value" preference defense under the "subsequent advance" approach.In re Pillowtex, No. 03-12339 (Bankr. D. Del. filed Oct. 15, 2009).

A trustee’s power to avoid preference payments is circumscribed by the statutory defenses set forth in section 547(c) of the Bankruptcy Code. The "subsequent new value" defense set forth in section 547(c)(4) has three well-established elements:

363 Asset Sales: The Latest Restructuring Tool

Introduction

The dearth of credit available for companies in financial distress means an asset sale may be the only way to save the business and jobs. It also presents unusually attractive investment opportunities for public and private companies, private equity and hedge funds, and other investors with capital and an ability to move expeditiously.