In a recent decision, the United States Bankruptcy Court for the Southern District of New York found that the Statutory Committee of Unsecured Creditors (the “Committee”) of Iridium, a failed Motorola spin-off venture, was unable to prove that Iridium was insolvent or had unreasonably small capital during the four-year period prior to commencement of its bankruptcy case.
Thinking about investing in a distressed company? If the company declares bankruptcy, your investment may be subject to equitable subordination, whereby your claim is subordinated to the claims of other creditors. One of the most crucial factors in determining whether your claim is equitably subordinated is whether you are deemed an insider as an insider’s actions undergo significantly more scrutiny than those of non-insiders. Of course, when investing in a distressed company, the more control over the entity’s, the better, right?
In order to get the information necessary to seize a debtor's assets or garnish his income, Rule 60.18 of the Rules of Court permit a creditor to require a debtor to attend an examination under oath before a court reporter and be questioned in relation to:
(a) the reason for non-payment or non-performance of the judgment;
(b) the debtor's income and property;
(c) the debts owed to and by the debtor;
(d) the disposal the debtor has made of any property either before or after the making of the order;
Many participants in the multibillion-dollar distressed-debt trading markets were hoping that Federal District Court Judge Shira A. Scheindlin would permit expedited review of her ruling immunizing a purchaser of a claim against a debtor in bankruptcy from objections to the claim based upon the conduct of a prior holder of the claim.
A recent ruling by a federal court in New York has the potential to severely impact the $500 billion a year distressed debt market.
The Delaware Supreme Court has affirmed, without opinion, a ruling by a lower court that ‘deepening insolvency’ is not a cause of action under Delaware law. Trenwick America Litig. Trust v. Billett, 931 A.2d 438 (Del. 2007).
The ruling appears to be the strongest nail yet in the coffin of so-called “deepening insolvency” actions.
The U.S. Court of Appeals for the Fourth Circuit has held that a creditor may not allocate payment by a nondebtor to interest first, before applying the balance to principal—and then seek to collect the remainder of the principal from a jointly liable debtor.
That strategy violated the Bankruptcy Code’s prohibition against collecting post-petition interest, the court reasoned in National Energy & Gas Transmission, Inc. v. Liberty Electric Power, LLC, No. 06-1459 (4th Cir. July 10, 2007). The majority’s rationale drew a pointed dissent.
This past summer, the Minnesota Court of Appeals held that "deepening insolvency" is not a recognized theory of damages in Minnesota. Christians v. Thornton, 733 N.W.2d 803 (Minn. App. 2007). In September, the Supreme Court of Minnesota denied a petition to review, 2007 Minn. LEXIS 572 (Minn. Sept. 18, 2007), leaving in place a decision that is an enormous relief to officers and directors of troubled companies, to banks that have lent to troubled companies, and to professionals such as lawyers, accountants and investment brokers who have provided services to troubled companies.
In a recent decision1 in a claims objection proceeding in the Solutia chapter 11 case, the Bankruptcy Court for the Southern District of New York set clear limits on the allowance of secured claims.
A federal bankruptcy court in New York has concluded that the market price of a company’s stock is the most reliable valuation to determine whether disputed transfers were avoidable. In re Iridium Operating LLC (Statutory Committee of Unsecured Creditors of Iridium v. Motorola, Inc.), 373 B.R. 283 (Bankr. S.D.N.Y., Aug. 31, 2007).