A recent New York trial court decision upheld a common full recourse trigger in a non recourse carve-out guaranty by holding that a voluntary bankruptcy filing by the borrower enabled the lender to seek immediate full repayment from the guarantor under the terms of the guaranty, even though the loan was subject to New York State's "one action rule" and the lender had pursued a foreclosure action against the property securing the loan.

In a recent opinion on an issue of first impression,¹ the United States Court of Appeals for the Second Circuit held that foreign entities seeking recognition under Chapter 15 of the Bankruptcy Code must, in addition to satisfying the requirements for recognition set forth in that chapter, have a residence, domicile, place of business or assets in the United States.

Part Two of a Two-Part Article

Last month, we discussed “prepayment premiums” or “make-whole payments.” The purpose of such prepayment premiums is to compensate lenders for what would otherwise be the loss of their bargained-for yields for the scheduled lives of their loans. Prepayment premiums are usually either based on a fixed fee, such as a percentage of the principal balance at the time of prepayment, or a yield maintenance formula that approximates the lenders’ damages in the event of prepayment.

One of the effects of commercial globalization is that the bankruptcy filing of a debtor with transnational business relationships will sometimes result in a clash between the substantive bankruptcy laws of different countries.  A frequent question is whether the bankruptcy laws of a foreign country should be brought to bear upon creditors located in the United States, even where foreign bankruptcy law is at odds with the laws of the United States. 

In a decision of significance to the distressed claims trading community, the US Court of Appeals for the Third Circuit in In re KB Toys Inc.[1] recently held that any risk or “cloud” of disallowance under the Bankruptcy Code resulting from a creditor’s receipt of an avoidable transfer cannot be separated from a claim, even when such claim is in the possession of a subsequent transferee.

The Court of Appeals for the Fourth Circuit, in Jaffe v. Samsung Elecs. Co., Ltd.^,1 recently held that a U.S. bankruptcy court is not required under principles of comity to blindly apply foreign law to assets located in the U.S. of a foreign debtor whose principal insolvency proceeding is outside the U.S. Instead, bankruptcy courts must balance the interests of the affected U.S. parties with the those of the foreign debtor. In this case, the balancing required the application of U.S. law to the foreign debtor’s U.S. assets, not German law as applied in the foreign proceeding.

Would you know what to do if you learned that one of your franchisees had filed for bankruptcy? Perhaps more importantly, would you know what not to do? While each circumstance and franchise agreement is different, there is a general framework for dealing with a franchisee in bankruptcy. Here we’ll introduce some of the issues you are likely to encounter throughout the bankruptcy process.

The Automatic Stay

In a case of importance to foreign representatives of foreign debtors seeking the assistance of US courts pursuant to chapter 15 of the Bankruptcy Code, the US Court of Appeals for the Second Circuit has held that the debtor eligibility requirements of section 109(a) of the US Bankruptcy Code apply in cases under chapter 15 as they would in cases under other chapters of the Bankruptcy Code. The decision in Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), Case No. 13-612 (2d Cir. Dec.