Reorganization or debtor-in-possession (“DIP”) financing has become an increasing source of litigation.

A popular line of thinking among bankruptcy practitioners and commentators holds that substantive consolidation – the combining of assets and liabilities of a debtor and another debtor or non-debtor entity to satisfy creditor claims against both entities ratably from the resulting pool – is an equitable remedy of judicial invention with no specific foundation in the Bankruptcy Code.

The term “frenemy” – a combination of the words friend and enemy – has emerged from modern vernacular to describe someone who is simultaneously a partner and an adversary. The term is perhaps perfectly emblematic of the restructuring process where various constituents make and break alliances in an effort to steer the restructuring process. In so doing, the lines between friend and enemy are often blurred or altered during the course of the restructuring.

On November 4, 2010, the United States Bankruptcy Court for the Northern District of Illinois certified the appeal of debtors River Road Hotel Partners, LLC, et al. of the court’s Order Denying Debtors’ Bid Procedures Motion (the Order) entered October 5, 2010. In its Order, the bankruptcy court expressly denied the debtors’ attempts to prevent their secured creditors from credit bidding in a proposed sale of assets under a chapter 11 plan.

In yet another attack on Mortgage Electronic Registration Systems (MERS), the U.S. Bankruptcy Court for the Southern District of California has refused to allow the assignee of a deed of trust (DOT) to regain possession of a home on which it had foreclosed where the assignment had not been recorded.

STAMAT v. NEARY (March 24, 2011)

Summary

In a 13 page decision signed, April 11, 2011, Judge Carey of the Delaware Bankruptcy Court granted a motion disallowing a creditor’s late-filed bankruptcy claim, and held that if there is no legal requirement that a party respond to an affidavit, a lack of response does not bind a party to that affidavit nor can it be considered an admission by that party. Judge Carey’s opinion is available here.

Background

Washington Governor Christine Gregoire has signed into law a series of changes to the state Receivership Act that will make it easier (and possibly cheaper) for creditors to utilize the Receivership Act as a tool to resolve troubled loan situations with their borrowers. The revisions will become effective 90 days after the Legislature adjourns, making July 24, 2011, the likely effective date. The changes clarify a number of points that previously puzzled both judges and practitioners.

Creditors' Rights

In Hardesty v. CitiFinancial, Inc.,1 the Sixth Circuit affirmed the bankruptcy court’s denial of the trustee’s request to avoid the debtors’ mortgages with the creditor based on allegedly defective certificates of acknowledgement in the mortgage documents under Ohio law.

The United States Bankruptcy Court for the Western District of Kentucky recently found that a vendor’s filing of a prepetition notice of lis pendens served to place any hypothetical judicial lien creditor, execution creditor, or purchaser of real property on notice of its equitable lien against the property for the unpaid portion of the purchase price. This prepetition notice of lis pendens prevented the debtors-in-possession from avoiding the vendor’s lien in exercise of their strong-arm powers under 11 U.S.C. § 544.