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.  

Relevance

This article was originally published in the January 2014 issue of Pratt's Journal of Bankruptcy Law.

Preference actions are common in bankruptcy cases. These actions seek to claw back payments made by a debtor to a creditor during the 90 days before the commencement of a bankruptcy case.

The U.S. Court of Appeals for the Second Circuit recently held in Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), 2013 BL 341634 (2d Cir. Dec. 11, 2013), that section 109(a) of the Bankruptcy Code, which requires a debtor "under this title" to have a domicile, a place of business, or property in the U.S., applies in cases under chapter 15 of the Bankruptcy Code.

The Seventh Circuit Court of Appeals recently held that a plan under chapter 13 of the Bankruptcy Code can modify the rights of a purchaser of delinquent real estate taxes on a debtor’s home by providing for payment of those taxes over time rather than in a lump sum. See In re LaMont (No. 13-1187, 7th Cir. January 7, 2014).

1. AUTOMATIC STAY
1.1 Covered Activities
1.2 Effect of Stay
1.3 Remedies

2. AVOIDING POWERS

Section 1121(e)(1) of the Bankruptcy Code provides a 180-day exclusive period for a small business debtor to file a plan, unless this period is extended by the court.  Section 1121(e)(2) provides “the” plan and a disclosure statement (if any) shall be filed no later than 300 days after the order for relief.  Section 1121(e)(3) provides that the deadlines in 1121(e)(1) and (e)(2) may be extended only if the debtor demonstrates that it is more likely than not that the court will confirm a plan within a reasonable period of time.