In a recent decision1 in a claims objection proceeding in the Solutia chapter 11 case, the Bankruptcy Court for the Southern District of New York set clear limits on the allowance of secured claims.

January 8, 2008 A Delaware bankruptcy court decided on Friday that mortgage servicing rights could be severed from a mortgage loan repurchase agreement that fell within applicable safe harbors of the Bankruptcy Code, at least where the loans were transferred “servicing retained.” The decision isCalyon New York Branch v. American Home Mortgage Corp., et al. (In re American Home Mortgage Corp.), Bankr. Case No. 07-51704 (CSS) (Bankr. D. Del. Jan. 4, 2008).

The United States District Court for the Southern District of Texas, applying federal law, has reversed a bankruptcy court's ruling that the proceeds of an E&O liability policy were property of a bankruptcy estate. In re Burr Wolff, LP, 2007 WL 2964835 (S.D. Tex. Oct. 10, 2007). The court held instead that the issue was not ripe for adjudication because a declaratory judgment action concerning the insurer's obligations under the policy was pending, and thus "no proceeds" were currently available.

Lawmakers’ efforts to overhaul the nation’s bankruptcy laws two years ago as part of the sweeping reforms implemented by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA ”) failed to resolve a number of important business bankruptcy issues that have been and continue to be the subject of protracted debate among the bankruptcy and appellate courts.

Amendments to the Federal Rules of Bankruptcy Procedure (the “Rules”) became effective on December 1, 2007, after having been approved by the U.S. Supreme Court in April and transmitted to Congress in June. These amendments, which apply to cases already pending on December 1, 2007 as well as cases filed thereafter, make some significant changes that will directly impact debtors, creditors and other stakeholders.

A fundamental premise of chapter 11 is that a debtor’s prebankruptcy management is presumed to provide the most capable and dedicated leadership for the company and should be allowed to continue operating the company’s business and managing its assets in bankruptcy while devising a viable business plan or other workable exit strategy. The chapter 11 “debtor-in-possession” (“DIP ”) is a concept rooted strongly in modern U.S. bankruptcy jurisprudence. Still, the presumption can be overcome.

The power to alter the relative priority of claims due to the misconduct of one creditor that causes injury to others is an important tool in the array of remedies available to a bankruptcy court in exercising its broad equitable powers. However, unlike provisions in the Bankruptcy Code that expressly authorize a bankruptcy trustee or chapter 11 debtor-in-possession (“DIP ”) to seek the imposition of equitable remedies, such as lien or transfer avoidance, the statutory authority for equitable subordination—section 510(c)—does not specify exactly who may seek subordination of a claim.

The nature of online commerce requires the collection of information from individuals to identify the parties to individual transactions, transfer funds for payment, and ensure the delivery of the goods or services being acquired. Public concern about the potential for abuse of such information by online merchants gave rise to the development of so-called "privacy policies" that provide a measure of reassurance that information collected will be protected from unauthorized use and disclosure.

District Judge James D. Zagel of the United States District Court for the Northern District of Illinois on Nov. 9, 2007, ordered a Chapter 11 debtor-in-possession ("DIP") to "immediately" pay its so-called "commitment" and "DIP Facility Funding" fees. ("Loan Fees"). Arlington LF, LLC, v. Arlington Hospitality, Inc., 2007 WL 3334499 (N.D. Ill. 11/9/07). Reversing the bankruptcy court, the district court held that the DIP was not excused from paying the fees despite the lender's earlier refusal to advance further funds on its $6 million revolving loan agreement ("Revolver"). Id. at 5.

Determining a question of first impression within its circuit, the U.S. Court of Appeals for the First Circuit recently held that an oversecured creditor is entitled to collect a bargained-for pre-payment penalty from a solvent debtor, regardless of the penalty’s “reasonableness” under section 506(b) of the Bankruptcy Code.

In so holding, the First Circuit reversed the decisions of the U.S. Bankruptcy and District Courts for the District of Rhode Island. Gencarelli v. UPS Capital Business Credit, 50 F.3d 1 (1st Cir., Aug. 30, 2007).