In a much anticipated decision, the Florida Supreme Court closed a statutory loophole that permitted debtors to use a wholly owned limited liability company (LLC) to put their assets beyond the reach of their judgment creditors. In Olmstead v. FTC, Case No. SC08-1009 (Fla. June 24, 2010), the Florida Supreme Court ruled that a court may order a judgment debtor to surrender all right, title, and interest in the debtor's single-member Florida limited liability company to satisfy an outstanding judgment.

As Dr. Seuss once famously wrote (Marvin K. Mooney, Will You Please Go Now), “THE TIME HAS COME, THE TIME IS NOW”. Good faith efforts to bargain with Chapter 9 of the Bankruptcy Code in the foreground must begin now if we want to emerge from this financial crisis.  

In a recent decision in the Chapter 11 case of Project Orange Associates, LLC1, the court confronted an important issue that often arises in bankruptcy cases: whether the use of conflicts counsel is sufficient to permit court approval under section 327(a) of the Bankruptcy Code of a debtor’s choice for general bankruptcy counsel that also represents an important creditor of the debtor in unrelated matters. Here, the conflict involved the debtor's largest unsecured creditor and an essential supplier.

In re Lehman Brothers Holdings, Inc., Case No. 08-13555 et seq. (JMP)(jointly administered)

In this US decision, the Bankruptcy Court held that the "safe harbour" protections of the US Bankruptcy Code only protect a non-defaulting party's right to liquidate, terminate or accelerate a swap, to offset and to net termination values and payment amounts and to foreclose on collateral, but do not permit the withholding of performance under a swap if the swap is not terminated.

A Massachusetts trial court has denied a borrower’s request to stop a foreclosure proceeding despite the borrower’s claim that the loan was “unfair” under the Massachusetts consumer protection law, Chapter 93A of the General Laws. In its May 13 decision denying the borrower’s request for an injunction, the court examined a stated income (no documentation) loan and determined that the borrower was not likely to prevail on a claim that the loan featured a combination of four characteristics that qualify as “unfair” under Chapter 93A.

On July 2nd, the Sixth Circuit affirmed a bankruptcy court's finding that, under Kentucky law, a bank did not perfect its security interest in an auto loan until that security interest was noted on the title. Because perfection did not occur within 20 days after the debtor received possession of the auto, Section 547(c)(3) of the Bankruptcy Code did not protect the bank's loan from avoidance as a preferential transfer. Branch Banking and Trust Co. v. Brock.

In a recent decision, SEC v Byers,1 the Second Circuit Court of Appeals held that district courts possess the authority and discretion to bar the filing of involuntary bankruptcy petitions without the district court’s permission.

Chapter 11 of the United States Bankruptcy Code is intended to allow financially stressed debtors to restructure their debt obligations through a plan of reorganization. Typically, a Chapter 11 plan places different types of claims in different classes and, subject to various requirements of the Bankruptcy Code, allows the debtor to pay only portions of the claims (and in certain circumstances not to pay certain claims at all). Moreover, the Bankruptcy Code allows a debtor the flexibility to structure a plan to defer the payment of certain claims.

In the case of In re: Exide Technologies, decided on June 1, 2010, the US Court of Appeals for the Third Circuit reversed two lower court decisions and held that a 1991 agreement between Exide Technologies and EnerSys Delaware Inc., which included a license to EnerSys for use of the “EXIDE” trademark, is not an executory contract that can be rejected by Exide in bankruptcy proceedings.

The Bankruptcy Appellate Panel for the Sixth Circuit has issued an opinion protecting and preserving a bank’s security interest in funds in the debtor’s bank account notwithstanding the fact that the bank released those funds to the trustee. In re Cumberland Molded Products, LLC, No. 09-8049 (6th Cir. B.A.P. June 23, 2010).