Although business bankruptcy filings have trended down in recent months, the lingering legacy of litigation prompted by the surge in filings at the outset of the U.S. financial crisis remains with us and continues to strike many general counsel with unexpected actions for recovery of payments made by the debtor in the run-up to a Chapter 11 case.

In an unpublished decision in In re The Village at Lakeridge, LLC, BAP Nos. NV-12-1456 and NV-12-1474 (B.A.P. 9th Cir. Apr. 5, 2013), the United States Bankruptcy Appellate Panel of the Ninth Circuit held that a vote on a plan of reorganization submitted by a non-insider claimant is not to be disregarded under Bankruptcy Code section 1129(a)(10) merely because the claimant purchased the claim from an insider. In other words, the transferee of a claim does not step into the shoes of the transferor vis à vis the transferor’s status as an insider.

Adjustments to certain dollar amounts in the Bankruptcy Code may affect your decision and strategy to either file a bankruptcy or in defending certain actions filed against you or your company. The automatic adjustments to the dollar amounts in various provisions of the Bankruptcy Code, 11 U.S.C. 101 et seq. went into effect on April 1, 2013. You may access the official forms by clicking the following link to the United States Courts:

In a short opinion for what it considered an “easy case,” the Supreme Court decided 8-0¹ in RadLAX Gateway Hotel, LLC v. Amalgamated Bank² on May 29, 2012 that if a plan of reorganization proposes a sale of property, secured lenders with liens on that property must be allowed to credit bid, i.e., “pay” using the amount of their allowed secured claim. This is a definite victory for secured lenders who, generally, will now not have to advance additional capital in order to protect their collateral.

Firms offering comprehensive financial services scored a significant victory on April 9, 2013, when Judge Robert Sweet of the United States District Court for the Southern District of New York dismissed Capmark Financial Group Inc.’s (“Capmark”) insider preference action against four lender affiliates of The Goldman Sachs Group, Inc. (“Goldman Sachs”), which arose out of Capmark’s 2009 bankruptcy.¹ Davis Polk represented the Goldman Sachs lender affiliates and advanced the arguments adopted by Judge Sweet.

Owners of Chapter 11 bankruptcy debtors have long devised schemes to try to hold on to their ownership interests while stiffing the debtors’ creditors. In the past, owners attempted to do this by proposing reorganization plans that paid creditors only a portion of what they are owed while selling all of the equity in the reorganized debtor to the owner for a nominal new investment.

The March 2013 Commercial Financial Services Brief included a cautionary tale about a secured party’s inadvertent loss of its security interest in its borrower’s bankruptcy case as a result of the secured party having mistakenly filed a UCC termination statement. This article describes another situation in which a secured party experienced a similar haunting outcome.

A recent decision by the United States Bankruptcy Court for the Southern District of New York¹ found that a UCC-3 termination statement filed on behalf of a secured creditor was not effective because it lacked the proper authorization.

The U.S. Bankruptcy Appellate Panel (“BAP”) for the Eighth Circuit held on March 25, 2013, that a lender “lost its possessory lien when it turned the Debtor’s account funds over to the Trustee without first seeking adequate protection.” In re WEB2B Payment Solutions, Inc., _____ B.R. 2013 _____, 2013WL 1188041, *5 (8^th Cir. B.A.P. March 25, 2013) (emphasis added).

A bankruptcy court in Texarkana, Texas held that breaches by two debtor-franchisees of a non-competition covenant in their franchise agreement with a print shop franchisor qualified for discharge through bankruptcy.  As the court noted, in addition to equitable remedies such as injunctive relief, Michigan law (under which the franchise agreement was governed) allowed for the award of monetary damages as compensation for violation of a non-competition agreement.  Because monetary damages were an available remedy, the court reasoned, the breach of the covenant qualified as a dischar