Section 1111(b) of the United States Bankruptcy Code (the “Code”) is one of its least understood provisions, primarily due to its somewhat opaque language. This Code subsection is divided into two distinct but related parts. The first part, section 1111(b)(1), provides that a nonrecourse secured claim in a Chapter 11 case will be treated “as if such holder had recourse against the debtor on account of such claim, whether or not such holder has such recourse” subject to two exceptions.
An opinion issued in connection with the bankruptcy cases of Lyondell Chemical Company and its affiliates may have significant implications for shareholders who receive payments in connection with a leveraged buyout when the underlying company subsequently files for bankruptcy.
The United States Bankruptcy Court for the District of Delaware recently limited the ability of a secured creditor to credit bid for substantially all of the debtors’ assets because (i) the credit bid would chill, or even freeze, the bidding process, (ii) the proposed expedited private sale pursuant to a credit bid would be inconsistent with notions of fairness in the bankruptcy process, and (iii) the amount of the secured claim was uncertain. In re Fisker Automotive Holdings, Inc., Case No. 13-13087 (Bankr. D. Del. Jan. 17, 2014).
Security has many advantages for creditors. Four important advantages are listed below, followed by a discussion of the results of a recent empirical study showing that creditors recognize the benefits of obtaining security from their borrowers.
Advantage 1: A Secured Creditor Will Rarely Walk Away Empty-Handed
Does a lender have a duty to act in good faith when negotiating with a borrower during a commercial loan modification? In an order issued recently by the United States Bankruptcy Court for the Eastern District of North Carolina, in In re: Burcam Capital II, LLC, the court denied a lender’s motion to dismiss a borrower’s claims against the lender. The Borrower alleged that the lender’s failure to modify the terms of the loan constituted a breach of the lender’s obligation to deal with the borrower in good faith, as well as an unfair or deceptive trade practice.&nbs
A bankruptcy judge in the Southern District of New York recently held that section 546(e) of the Bankruptcy Code does not prevent a debtor’s creditors from bringing state-law fraudulent conveyance actions that challenge a leveraged buyout of the debtor. Weisfelner v. Fund 1 (In re Lyondell Chem. Co.), No. 10-4609 (REG), --- B.R. ----, 2014 WL 118036 (Bankr. S.D.N.Y. Jan. 14, 2014).
The biggest trend in Chapter 11 bankruptcies over the past 10 years is to sell assets through a “Section 363 sale,” named for Section 363 of the Bankruptcy Code, which describes the standards for sales in bankruptcy court. Previously, in most Chapter 11 cases, the debtor would propose a Chapter 11 plan. In successful cases, the Chapter 11 plan would be approved by creditors and by the court. If a debtor was selling substantially all of its assets, the sale would be part of the Chapter 11 plan.
In a case of first impression at the circuit level, the Tenth Circuit Court of Appeals has held a debtor’s entire religious tithing is avoidable if it exceeds 15% of the debtor’s gross annual income, and the court did so based on its perception of the plain language of the Religious Liberty and Charitable Donation Protection Act which codified the “safe harbor” provisions of sec.
A parochial elementary school and high school were recently sued in the U.S. Bankruptcy Court for the Eastern District of New York by Robert Geltzer, a bankruptcy trustee. The suits, Geltzer v. Our Lady of Mt. Carmel-St. Benedicta School and Geltzer v. Xavarian High School, were brought in an effort to recover tuition payments made by a student’s parents who had later filed for bankruptcy. (Kelley Drye & Warren LLP represented Our Lady of Mt. Carmel-St.
CASE SNAPSHOT