The Bankruptcy Court for the Southern District of New York held recently that § 550 of the Bankruptcy Code does not limit the potential recovery on fraudulent transfer claims to the amount of unpaid creditor claims against a debtor’s estate. According to the Court, the language in § 550(a) that states that a plaintiff in an avoidance action can recover the property transferred or the value of the property “for the benefit of the estate” provides a “floor” rather than a “ceiling” on recovery.
On January 19, 2012, the Seventh Circuit in In re River East Plaza, LLC, (No. 11-3263), held in favor of a secured lender further strengthening the rights of secured creditors in bankruptcy cases.
The U.S. Court of Appeals for the Seventh Circuit affirmed a bankruptcy court’s dismissal of a single asset real estate case on Jan. 19, 2012, reasoning that the debtor’s proposed substitute collateral “was not the indubitable equivalent of the [undersecured lender’s] mortgage.”In re River East Plaza, LLC, 2012 WL 169760, *2 (7th Cir. Jan. 19, 2012) (Posner, J.). In the court’s words, the debtor “wanted [the lender] out of there and decided to seek confirmation of a [reorganization] plan . . .
On December 22, 2011, the United States Bankruptcy Court for the District of Delaware inIn re JER/Jameson Mezz Borrower II LLC 1 dismissed with prejudice a mezzanine borrower’s bankruptcy case for bad faith under Section 1112(b) of the Bankruptcy Code. In doing so, the court clarified that the standard in the Third Circuit to evaluate the good faith of a debtor seeking shelter under the umbrella of Chapter 11 of the Bankruptcy Code is an objective one and does not consider the subjective good faith of a debtor as do courts within the Secon d Circuit.
The United States Bankruptcy Court for the District of Delaware (the Court) recently granted a motion to dismiss a mezzanine borrower’s chapter 11 bankruptcy petition at the outset of the debtor’s case.1 In In re JER/Jameson Mezz Borrower II, LLC, The Court found that the debtor’s petition had been filed in bad faith because, among other things, a junior mezzanine lender had directed the debtor to file the petition with the intent of hindering a senior mezzanine lender’s foreclosure efforts and without any valid reorganization purpose.
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Theresa V. Brown-Edwards, Ryan M. Murphy
The United States Supreme Court accepted the petition for certiorari on the Seventh Circuit decision in RadLAX Gateway Hotel, LLC v. Amalgamated Bank on December 12, 2011 and arguments will likely be heard by the Court in April 2012. This case presents the Supreme Court with the important issue of whether secured lenders are entitled to submit a credit bid, a bid not requiring actual transfer of payment, at the sale of their collateral in the Bankruptcy Court.