Recent rulings in the Third Circuit Court of Appeals and the U.S.
Law360, New York (February 25, 2014, 1:26 PM ET) -- In the Chapter 11 bankruptcy of Fisker Automotive Holdings Inc., a manufacturer of hybrid electric vehicles, the U.S. Bankruptcy Court for the District of Delaware recently ruled that the proposed stalking horse purchaser of substantially all of Fisker’s assets in a sale under Section 363 of the Bankruptcy Code was entitled to credit bid only a fraction of its secured claim. In re Fisker Auto. Holdings Inc., No. 13087 (Bankr. D. Del. Jan. 17, 2014) [Docket No. 483].
Numerous bankruptcy trustees have attempted to claw back from colleges and universities — and even from private elementary and secondary schools — the tuition payments that parents made on behalf of their children, when the parents subsequently filed for bankruptcy.
On January 17, 2014, Chief Judge Kevin Gross of the Bankruptcy Court for the District of Delaware issued a decision limiting the right of a holder of a secured claim to credit bid at a bankruptcy sale. In re Fisker Auto. Holdings, Inc., Case No. 13-13087-KG, 2014 WL 210593 (Bankr. D. Del. Jan. 17, 2014). Fisker raises significant issues for lenders who are interested in selling their secured debt and for parties who buy secured debt with the goal of using the debt to acquire the borrower’s assets through a credit bid.
Recent developments in the bankruptcy arena have placed a greater burden on claimants. Creditors are now required to make additional disclosures in their proof of claim forms, and courts are under no obligation to recognize late-filed claims. Proposed changes to the Bankruptcy Rules, including an amendment slashing the time to file a proof of claim, highlight the need for creditors to exercise extra vigilance.
GREATER DISCLOSURE
Chapter 11 has long been used by companies to obtain relief from legacy tort liabilities. There has been a lingering question, however, as to whether chapter 11 can bar claims by tort litigants who were exposed to a hazardous material or defective product before bankruptcy but do not develop injuries until after the case is over. Some debtors have set up trusts and appointed representatives for so-called “future claimants”: this approach can be effective, but may add months or years to a bankruptcy case along with significant cost, business disruption and litigation.
A & F Enterprises, Inc. v. IHOP Franchising LLC (In re A & F Enterprises, Inc.), 2014 WL 494857 (7th Cir. 2014)
In Jaffé v. Samsung Electronics Company, Limited,1 a Court of Appeals protected the rights of cross- licensees of a German debtor’s American patents by applying the U.S. Bankruptcy Code, instead of inconsistent German law. Specifically, in Chapter 15 U.S. bankruptcy proceedings ancillary to German insolvency proceedings, the administrator notified certain cross-licensees of the debtor’s patents that their cross-licenses were not enforceable under German law. The cross-licensees argued that under U.S. law, they had the option to retain their rights under the cross-licenses.
On February 4, 2014, the United States Bankruptcy Court for the District of New Jersey in In re Surma, 2014 WL 413572 (Bankr. D.N.J. Feb. 4, 2014), held that rents were not property of the debtor’s bankruptcy estate because they were subject to an absolute and unconditional assignment of rents in favor of the secured lender. As a result, the court concluded that the debtor may not, through his Chapter 11 plan of reorganization, use or allocate rents.
Background
The U.S. Court of Appeals for the Fifth Circuit held on Jan. 27, 2014 that a lender’s acceleration due to a borrower’s payment default did not trigger a prepayment premium. In re Denver Merchandise Mart, Inc., 2014 WL 291920, *1 (5th Cir. Jan. 27, 2014) (“Denver Merchandise”). Affirming the lower courts’ application of state law, the court held that “the plain language of the contract does not require the payment of the Prepayment Consideration in the event of mere acceleration.” Id. at *5.
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