The Ninth Circuit in In re Fitness Holdings Int’l, 2013 U.S. App. LEXIS 8729 (9th Cir. April 30, 2013) recently reversed precedent and established that bankruptcy courts in the Ninth Circuit have the power to determine whether a transaction creates a debt or equity interest for purposes of § 548 of the Bankruptcy Code. In doing so, the Ninth Circuit joins the Third, Fourth, Fifth, Sixth and Tenth Circuits in expressly recognizing bankruptcy courts’ ability to recharacterize claims in bankruptcy proceedings.

Secured creditors need to be aware of recent bankruptcy rulings that affect their rights and interests. These rulings have tested the boundaries of key concepts affecting the ability to "cramdown" and involuntarily restructure a secured creditor’s rights and the valuation of collateral. Secured creditors must therefore be mindful of these developments and risks in guiding their negotiating and litigation strategy against a cramdown threat.

U.S. District Judge Jed S. Rakoff of the Southern District of New York, applying the swap agreement safe harbor provision of the Bankruptcy Code (the "Code") §546(g), dismissed a Chapter 11 litigation trustee's state law fraudulent transfer complaint against a bank on June 11, 2013. Whyte v. Barclays Bank, PLC, 2013 WL2489925 (S.D.N.Y. June 11, 2013).

On July 11, California Governor Jerry Brown signed into law SB 233, the Fair Debt Buyers Practices Act, which establishes numerous new rules related to the purchase and collection of consumer debts, including five key protections for debtors.

Georgia court rejects “replacement lien” as adequate protection.

A federal district court in Georgia recently ruled that a financial institution creditor in a Chapter 11 case had separate, distinct security interests in both the rental property on which it had accepted a mortgage and that property’s rental income by virtue of an assignment of rents from the debtor.

The City of Detroit filed for protection under chapter 9 of the Bankruptcy Code on July 18, 2013,1 becoming the largest municipality to ever file for bankruptcy. Detroit’s bankruptcy filing presents numerous complicated issues, which will be resolved over the course of the case.

The Issue

Summertime is arguably the best time of the year. Warm weather. Long-awaited family vacations. Extended daylight. And unique to this summer, as of July 1, 2013, in most states, we have substantial amendments (the 2010 Amendments) to the Uniform Commercial Code (UCC) to digest (maybe even under an umbrella on the beach). The 2010 Amendments are intended to clarify existing law, especially with respect to how certain types of debtors are named in financing statements. As of July 3, 2013, 44 states and the District of Columbia had enacted the 2010 Amendments.

In a much-awaited judgment, the UK Supreme Court has decided that the liability of a company in administration or liquidation to contribute to an under-funded pension fund following a Financial Support Direction or a Contribution Notice is a provable debt ranking equally with other unsecured creditors. Crucially, it is not an expense of the administration or liquidation which would cause it to rank ahead of all creditors (except fixed charge holders) and even the administrator's or liquidator's own remuneration.

The absolute priority rule ordinarily prevents a Chapter 11 debtor from distributing any money or property to junior creditors and old equity investors unless all senior creditors have first been paid in full. See 11 U.S.C. § 1129(b)(2)(B)(ii). Nevertheless, old equity investors may attempt to receive new equity in the reorganized debtor in consideration for providing new (post-bankruptcy) investments in the debtor.