The Bottom Line:
The Bottom Line:
The Bottom Line:
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.
In the last several months, there have been some significant legal developments that could impact acquisition finance. This article will survey some of the more notable ones.
In a case with implications for buyers of assets in a bankruptcy court-ordered sale under section 363(b) of the Bankruptcy Code, the Bankruptcy Court for the Southern District of New York recently issued a decision limiting the ability of manufacturers that are debtors in a bankruptcy case to sell assets free and clear of future liabilities.
Senior lenders often insist that subordinate lenders assign to them, under subordination and intercreditor agreements, their right to vote on a plan of reorganization proposed for the borrower should it end up in chapter 11. The intention of such assignments is to prevent junior lenders from facilitating or preventing confirmation of bankruptcy plans contrary to the desires of senior lenders. Lenders should be aware, however, that courts disagree whether such plan voting rights assignments are enforceable. In fact, the United States Bankruptcy Court for the District of Mas
One of the concerns for creditors dealing with a distressed company is the possibility of bankruptcy, and the risk that payments to the creditor on account of previously incurred debt will be avoided as a "preference" in the debtor's bankruptcy proceeding. Generally speaking, a "preference" is a transfer of the debtor's property on the eve of bankruptcy to satisfy an old debt. The Bankruptcy Code allows a bankrupt company to reach back 90 days and avoid any transfers made to creditors during that time, subject to certain defenses.
Unless you are a specialized lender who makes loans to debtors-in-possession, you do not make a loan with the expectation that your borrower is going to file bankruptcy. Although the number of bankruptcy filings in California and nationally is trending slightly lower, filings remain at higher than normal levels. Nearly every lender has received the notice of a bankruptcy filing that was unexpected and then faced decisions as to what to do next.
In re Lehman Brothers Inc., Bankr. Case No. 08-01420 (JMP) (SIPA), 2011 WL 4553015 (Bankr. S.D.N.Y. Oct. 4, 2011)
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