A secured creditor's option to credit bid its claim where its collateral is to be sold under a chapter 11 plan is an important protection to ensure that the creditor's collateral is not sold for less than its actual value. Rather than accepting the cash generated by a low bid, the creditor can submit its own bid, up to the amount of its secured claim, and recover its collateral instead. This traditionally recognized right was upset by two fairly recent circuit court decisions, one from the Fifth Circuit and one from the Third Circuit. In re Pacific Lumber Co., 584 F.3d 229 (5th Cir.
In In re Washington Mutual, Inc., No. 08-12229 (MFW), 2011 WL 4090757 (Bankr. D. Del. Sept.
A significant consideration in a prospective chapter 11 debtor's strategic prebankruptcy planning is the most favorable venue for the bankruptcy filing.
In re Zais Investment Grade Ltd. VII1 is the latest in a recent line of bankruptcy cases challenging bedrock assumptions regarding securitization special purpose entities (SPEs) and bankruptcy considerations in securitization transactions.2 Zais establishes precedent allowing a senior noteholder of a collateralized debt obligation (CDO) to place the CDO issuer in an involuntary chapter 11 bankruptcy in order to advance an asset management plan that would otherwise require supermajority approval of all noteholders (including all junior classes) under the related indenture.
On September 19th, the Ninth Circuit considered whether the exception to Chapter 7 bankruptcy discharge for debts resulting from a violation of state or federal securities laws applies when the debtor himself is not culpable for the securities violation that caused the debt. The case involved an attorney who was required by court order to return the unearned retainer paid by a company that engaged in securities fraud. The attorney filed a petition for Chapter 7 bankruptcy before he was technically required to return the money.
Masuda, Funai, Eifert & Mitchell routinely represents creditors in bankruptcy proceedings in order to protect their contractual and legal interests and rights to payment. The following is a list of some recent larger U.S. bankruptcy filings in various industries. To the extent you are a creditor to any of these debtors, or other entities which may have filed for bankruptcy protection, you as a creditor are entitled to certain protections under the Bankruptcy Code.
AUTOMOTIVE
In a decision that may have implications for holders of community development district bonds and other similar “dirt bonds,” a Florida bankruptcy court has ruled that holders of community development district bonds do not always have plan voting rights when the underlying developer — as opposed to the development district itself — is the bankruptcy debtor.
When dealing with a debtor in Chapter 11, vendors typically seek to protect against loss by insisting upon payment in advance or on very short terms. However, the monies paid to a vendor following the filing of bankruptcy often constitute the cash collateral of a secured creditor. It is critical that a vendor determine whether the debtor has authorization to use cash collateral.
The Bottom Line:
On September 13, 2011, Judge Mary F. Walrath of the United States Bankruptcy Court for the District of Delaware granted standing for an equity committee in In re Washington Mutual, Inc. (“WaMu”) to seek “equitable disallowance” of claims held by noteholders that had traded claims after engaging in negotiations with WaMu over the terms of a global restructuring.