A.   Where We Left Off

Bankruptcy can be a lifeline to those individuals trying to get out from under a mountain of debt, but it becomes a point of frustration for the companies forced to move on without collecting the money they were owed.

The Bankruptcy Appellate Panel for the First Circuit recently held that a creditor holding a perfected security interest in accounts and payment intangibles did not have a perfected security interest in the proceeds of an insurance settlement. In re Montreal, Maine & Atlantic Ry., Ltd., 521 B.R. 703 (B.A.P. 1st Cir. 2014). In this case, the creditor had extended a line of credit to the borrower, which it secured by a security interest in all the borrower’s accounts and payment intangibles. The creditor filed a financing statement to perfect its security interest.

In a case of first impression, the Ninth Circuit held that the unsecured portion of a secured debt, for which the 

If your small business is struggling with debt, bankruptcy relief may be an option.

You’re lying awake at night wondering how you’re going to make payroll.  Many of your suppliers are threatening to switch you to cash on delivery (COD) or to cancel your account all together.  You know the IRS will soon be knocking on your door to collect taxes.  You’re in financial trouble and you think, “What am I going to do?”

On March 10, 2015, the United States District Court for the Middle District of Alabama issued a memorandum decision in the case of Harrelson v. DSS, Inc. (No. 14-mc-03675), declining to withdraw the reference from the bankruptcy court and holding that the existence of an arbitration agreement and a class action waiver in that arbitration agreement did not require substantial consideration of the Federal Arbitration Act (FAA).

Facts

The realities of the bankruptcy venue provisions require potential debtors and their advisers to prudently weigh the legal significance of a bankruptcy filing in various courts. In a recent decision, U.S.

Since its 1989 opinion in Folendore v. Small Business Admin., the Eleventh Circuit Court of Appeals has allowed debtors to completely strip off and void wholly unsecured junior liens in Chapter 7 bankruptcies under Section 506(d) of the Bankruptcy Code. Complete lien stripping forever prevents creditors from seeking relief against a debtor’s collateral if it is underwater, even if the property value later increases. Since Chapter 7 debtors are also discharged of personal liability, subordinate debt is, in such cases, rendered worthless.

That may soon change.

In an effort to protect the property of a bankruptcy estate, Section 362(a) of the U.S. Bankruptcy Code imposes an automatic stay on most proceedings against a debtor in bankruptcy. The policy of this section is to grant relief to a debtor from creditors, and to prevent a "disorganized" dissipation of the debtor's assets. (See, e.g., U.S. Securities and Exchange Commission v. Brennan, 230 F.3d 65, 70 (2d Cir. 2000).) However, the scope of the automatic stay is not all-encompassing.

A recent Delaware District Court decision concerning an appeal of a bankruptcy settlement clearly provides support for the use of tender offers or other exchange, or settlement mechanics permitted under applicable federal securities laws prior to and outside a plan of reorganization. In essence, this decision permits debtors to utilize exchange offers to repurchase outstanding securities at a discount, or obtain more favorable terms during a bankruptcy proceeding and prior to confirmation of a plan of reorganization.

Case Summary