Another court ruling on a missed bar date highlights the importance of ensuring your rights are protected. Failure to comply with a deadline to file a claim can have catastrophic consequences.

The United States Court of Appeals for the Second Circuit on Aug. 30, 2007, affirmed the dismissal of a lender liability class action brought by employees of a defunct originator and seller of mortgages and home equity loans. 2007 U.S. App. LEXIS 20791 (2d Cir. August 30, 2007). Agreeing with the district court, the Second Circuit held that the lender was not an "employer" within the meaning of the Worker Adjustment & Retraining Notification Act ("WARN Act"), and thus was not liable to the employees for the sudden loss of their jobs. Id., at *2.

While the Bankruptcy Code’s safe harbor provision in section 546(e) previously provided comfort for brokerdealers, the Bankruptcy Court’s decision in Gredd v. Bear, Stearns Securities Corp. (In re Manhattan Investment Fund, Ltd.), 359 B.R. 510 (Bankr. S.D.N.Y. 2007), chips away at this provision and creates new risks for those providing brokerage account services. Always at risk as a deep pocket, new duties have been thrust upon brokerdealers that go far beyond the terms of the account agreement.

Factual Background

In In re Calpine Corporation, 2007 WL 685595 (Bankr. S.D.N.Y. 2007), the Bankruptcy Court for the Southern District of New York considered the issue of whether secured creditors whose debt was being paid prior to its original maturity date were entitled to a prepayment premium.

While derivations of intercreditor agreements continue to enhance the rights of the senior secured party, whether the many provisions provided for are enforceable in bankruptcy remains a burning question. Recently, the Bankruptcy Court for the Northern District of Georgia in In re Aerosol Packaging, LLC, 2006 WL 4030176 (Bankr. N.D.Ga. 2006) helped bring clarity to one of the most important of these issues: is the right of a senior creditor to vote the claim of a junior creditor on whether to accept or reject a plan of reorganization enforceable in bankruptcy?

Debtors, creditors, purchasers and lenders continue to carefully monitor employee incentive programs after the 2005 changes to Bankruptcy Code brought on by BAPCA. Although many feared the changes to section 503(c) would eliminate an important tool for creating incentives for employees, courts have consistently approved reasonable and well-thought-out incentive programs.

Factual Background

In Motorola, Inc. v. Official Committee of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d 452 (2d Cir. 2007), the Official Committee of Unsecured Creditors (the “Committee”) and the debtors’ lenders sought approval of a settlement prior to confirmation of a plan of reorganization. While the Court concluded that many aspects of the settlement might otherwise be approved, it found that a provision that distributed funds in violation of the absolute priority rule lacked sufficient justification.

In National Energy & Gas Transmission, Inc. v. Liberty Electric Power, LLC (In re National Energy & Gas Transmission, Inc.),1 the Fourth Circuit held that, where an unsecured creditor receives payment from a non-debtor guarantor in partial satisfaction of a claim against the debtor, for purposes of the creditor's claim against the debtor, the creditor may not choose to allocate such payment to post-petition interest.

According to a recent decision by the United States District Court for the Southern District of New York,1 a claim sold post-petition is not subject to equitable subordination based solely on the original claimholder's conduct. Likewise, a claim sold post-petition cannot be disallowed based on the original claimholder's receipt of (and failure to repay) an avoidable transfer.

Background

While many amendments to bond indentures can be made without consent from all bondholders, “non-impairment” clauses provide that the indenture may not be amended or restructured in any way that will affect or impair a bondholder’s right to receive principal and interest when due without unanimous consent.