In most financing transactions, particularly project finance transactions, lenders seek to obtain security over all of a borrower’s assets. One crucial asset that sometimes does not get sufficient attention is insurance proceeds. Lenders are accustomed to ensuring access to the borrower’s insurance coverage through “additional insured” or “loss payee” provisions.
The availability of a debtor’s insurance policy can have a significant impact on its chapter 11 case. Indeed, in certain chapter 11 cases insurance proceeds may be a creditor’s only opportunity to potentially receive a recovery on meritorious claims. Relying on insurance proceeds, however, is not infallible. An insurance policy may, for example, contain a coverage exclusion that would preclude a claim. For instance, nearly all directors’ and officers’ liability insurance policies traditionally include an insured v.
Imagine that you are an unsecured lender who has learned that a borrower has filed for bankruptcy and has little to no assets available to pay creditors. Is there any way to prevent your debt from being extinguished? This is a common question and often the answer unfortunately is no; however, if the debtor is an individual and the debt meets certain requirements established by the Bankruptcy Code, the court may declare the debt nondischargeable (in other words, the debt will remain with the debtor after the bankruptcy case is closed).
In Bankruptcy Code Section 363 sales of assets, there are winners and losers.
Chapter 11 is known as a forum for reorganizing or selling a financially distressed business. If a Chapter 11 reorganization is not possible, a sale of assets may create investment opportunities for strategic buyers, investment banks, and private equity to take advantage of the “distress” normally associated with Chapter 11 to acquire assets at a discount, exemplifying Warren Buffet’s “value” buying.
On May 16, 2016, the United States Supreme Court decided the term “actual fraud” in Bankruptcy Code § 523(a)(2)(A) encompasses forms of fraud, like fraudulent conveyance schemes, that can be effected without a false representation by a debtor. Importantly, the Husky International Electronics, Inc. v. Ritz, No. 15-145, 2016 WL 2842452 (U.S. May 16, 2016) opinion clears up a split among the lower courts on the question of whether the phrase “actual fraud” requires a false representation to be made to a creditor.
When Can a Subsidiary Be Liable for the Actions of Its Owners?
One of the goals of the Bankruptcy Code is to provide a debtor with a fresh start. The discharge of prepetition debts at the conclusion of a bankruptcy case is one of the most important ways to attain this fresh start. On May 16, 2016, the Supreme Court made it harder for debtors to obtain a fresh start by broadening an exception to discharge.
Perhaps Next Time the Debtor Will Speak Up a Little Sooner
(Bankr. W.D. Ky. May 19, 2016)
Chapter 13 bankruptcy allows debtors to confirm plans that provide for the payment of their debts through future earnings while, at the same time, retaining their assets. If a creditor wishes to receive payments pursuant to a debtor’s plan, the creditor must file a proof of claim. And it must do so timely.