The United States Bankruptcy Court recently denied confirmation of a bankruptcy plan even though it found that the plan's global settlement was "fair and reasonable."1 Why? Because the plan's releases were too broad and "unreasonable" for many of the constituents. The case provides a pointed lesson to creditors and debtors alike — pay attention to the releases; overdoing it may sink the whole ship.
A Bankruptcy Appellate Panel (BAP) of the Tenth Circuit recently upheld a bankruptcy court’s dismissal of an LLC’s Chapter 11 bankruptcy petition on the ground that the LLC’s operating agreement barred the LLC from filing for bankruptcy. DB Capital Holdings, LLC v. Aspen HH Ventures, LLC (In re DB Capital Holdings, LLC), No. CO-10-046, 2010 Bankr. LEXIS 4176 (B.A.P. 10th Cir., Dec. 6, 2010).
The Bankruptcy Appellate Panel for the Sixth Circuit (BAP) recently held that a mortgagee that held a collateral assignment of rents on property in which the debtor had no equity was not adequately protected by cash collateral orders entered by the bankruptcy court that granted the lender a "replacement lien" on post-petition rents.
- Introduction
Congress enacted the current Bankruptcy Code, Sections 101 through 1502 of Title Eleven of the United States Code (as amended, the “Bankruptcy Code”), in 1978, and it took effect late in 1979. Many important federal environmental statutes were enacted around the same time, e.g., Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) in 1980. Thus, Congress did not fully consider environmental liability schemes when it created the bankruptcy code.
The US Court of Appeals for the Ninth Circuit recently held that a creditor of a bankrupt corporation may assert alter ego claims against the corporation’s sole shareholders. The California Court of Appeals for the Second Appellate District not only supports the Ninth Circuit’s decision but has recently taken it one step further, holding that alter ego allegations are not even subject to the automatic bankruptcy stay.
On December 23, 2010, the Bankruptcy Appellate Panel of the 6th Circuit, upheld the Eastern District of Kentucky’s Bankruptcy Court’s order that post petition rents, revenues or other funds derived from leased real property is property of the estate under 11 U.S.C. §541 and can be used as cash collateral under 11 U.S.C. §363. However, post petition rents can be used as cash collateral only if the debtor can provide adequate protection for the use of those rents through an existing equity cushion in the property.
On January 24, 2011, the Honorable Dwight H. Williams, Jr. of the U.S. Bankruptcy Court for the Middle District of Alabama denied the Federal Deposit Insurance Corporation’s (“FDIC”) request for relief from the automatic stay in the Colonial BancGroup, Inc.
Section 507(b) of the Bankruptcy Code provides that if a secured creditor receives “adequate protection” for its interest in collateral held by a debtor, but that adequate protection ultimately proves insufficient, then the creditor is entitled to a “superpriority” administrative expense claim sufficient to cover any uncompensated diminution in the value of that collateral.
It is well established that the automatic stay imposed under section 362 of the United States Bankruptcy Code (the “Bankruptcy Code”) in a typical bankruptcy case applies extraterritorially. Thus, creditors of a Chapter 11 debtor are generally prohibited from exercising any remedies against a debtor or its assets anywhere in the world. Up until recently, no court had addressed the scope of the stay applicable in a Chapter 15 case.
Recently, a Colorado bankruptcy court considered for the first time the effects of Bankruptcy Code Section 552 on a lender’s security interest in the proceeds of an FCC broadcast license. The court held that a prepetition security interest would not extend to proceeds received from a post-petition transfer of the debtor’s FCC license because the debtor did not have an attachable, prepetition property interest in the proceeds. Such an interest does not arise until the FCC approves an agreement to sell the license.