Years ago, second lien lenders adhered to the truism about children -- they were seen but not heard. As our children have grown more vocal in recent years, so too have second lien lenders. A spate of recent bankruptcy cases demonstrate that second lien lenders have been both seen and heard at many critical junctures in the chapter 11 timeline -- at the sale of the debtor’s assets under section 363 of the Bankruptcy Code,1 in seeking the appointment of an examiner,2 when voting on a chapter 11 plan,3 and in connection with the confirmation hearing.4

The U.S. Bankruptcy Code provides for the appointment of a bankruptcy examiner to investigate the debtor with respect to allegations of fraud, dishonesty, incompetence, misconduct or mismanagement. The right examiner, with a clearly defined mission, will have a major influence on the bankruptcy process. The difference between a successful financial restructuring or liquidation-resulting in substantial recoveries for the key constituencies-and a time-consuming (and asset-consuming) meltdown, can depend on the approach of the examiner and the examiner's support team.

In the well-publicized opinion of In re Philadelphia Newspapers, LLC et al., 599 F. 3d 298 (3rd Cir. 2010), the U.S. Court of Appeals for the Third Circuit, agreeing with the U.S. Court of Appeals for the Fifth Circuit,1 held that Section 1129(b)(2)(A) of the Bankruptcy Code (the Code)2 is unambiguous and is to be read in the disjunctive, thus allowing a proponent of a Chapter 11 plan of reorganization to use the "cram down" power under subsection (iii) of that Section without allowing a secured creditor to credit bid on a sale proposed as part of the plan.

Introduction

Earlier this month, the chapter 11 trustee (the "Trustee") in the DBSI bankruptcy began filing adversary actions seeking the avoidance and recovery of alleged fraudulent transfers. The Trustee filed the adversary actions against various defendants, some of whom the Trustee identifies as "John Doe 1 -10." This post will look briefly at the DBSI bankruptcy proceeding, why DBSI filed for bankruptcy, as well as some of the events that have transpired since the compnay filed for bankruptcy.

Background

In today’s turbulent economic climate, it is vital for creditors and debtors to understand the precise boundaries of their rights and duties when an enterprise becomes insolvent. Directors, officers and managers must acknowledge those to whom they owe fiduciary duties and fulfill those duties at the risk of personal liability, while creditors evaluate their potential remedies against misbehaving insiders to collect on defaulted obligations.

In re Leslie Controls, Inc., (Bankr. D. Del., Case No. 10-12199, 2010)

CASE SNAPSHOT

Sovereign Bank v Hepner (In re Roser), 613 F.3d 1240 (10th Cir. 2010).

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Introduction

Hitchin Post Steak Co v General Electric Capital Corporation (In re HP Distribution, LLP), 436 B.R. 679 (Bankr. D. Kan. 2010)

CASE SNAPSHOT

The United States Bankruptcy Court for the District of Kansas considered whether commercial vehicle leases that contained Terminal Rental Adjustment Clauses (or TRAC provisions) were true leases under Section 365 of the Bankruptcy Code or, instead, disguised financing transactions. The court held that the TRAC leases were true leases that must be either assumed or assigned pursuant to the terms of Section 365.

Parks v. Dittmar (In re Dittmar), 618 F.3d 1199 (10th Cir. 2010)

CASE SNAPSHOT