In the chapter 1 1 cases of Adelphia Communications Corporation and its subsidiaries, Adelphia sought to assume and assign more than 2,000 franchise agreements in connection with the proposed transfer of its cable operations to affiliates of Comcast Corporation and Time Warner Cable. Numerous local franchising authorities objected, arguing, among other things, that they had a right of first refusal under the agreements, and in some cases also under a local ordinance, to purchase the franchise on substantially the same terms and conditions.

Two circuit courts of appeal recently addressed whether a company filing chapter 11 for the sole purpose of retaining vital leases did so in good faith. In In re Capitol Food of Fields Corner, the First Circuit, in a matter of first impression on the issue of chapter 11’s implied good-faith filing requirement, declined to address the broader question, concluding that even if there is a good-faith filing requirement, a prima facie showing of bad faith could not be met because the debtor articulated several legitimate reasons for the necessity of reorganizing under chapter 11.

The U.S. Court of Appeals for the Third Circuit has ruled that a debtor may not reduce the number of votes required to confirm a chapter 11 plan of reorganization by purchasing certain claims. Such vote “gerrymandering” resulted in an unconfirmable plan, the court ruled. In re Machne Menachem, Inc., 233 Fed. Appex. 119, 2007 WL 1157015 (3d Cir. Apr. 19, 2007 (Pa.)).

While Bankruptcy Code section 105 grants broad powers to issue injunctions, most bankruptcy courts are reluctant to enjoin litigation in other venues. A recent ruling by the U.S. Court of Appeals for the Ninth Circuit follows this trend, reversing a preliminary injunction issued by a bankruptcy court staying arbitration proceedings between two nondebtor parties.

However, the Ninth Circuit also articulated specific standards for when such a section 105 injunction may be obtained. In re Excel Innovations, Inc., 502 F.3d 1086, 2007 WL 2555941 (9th Cir. Sept. 7, 2007).

For more than 10 years, the courts in New Jersey were split as to whether, under the Bankruptcy Code, a chapter 13 debtor’s right to cure a default on a mortgage loan secured by the debtor’s primary residence expired at the foreclosure sale, or at the time the deed to the foreclosed property was delivered to the purchaser. That split now has been resolved by the U.S. Court of Appeals for the Third Circuit in favor of the line of cases cutting off the right to cure at the time of the foreclosure sale. In re Connors, No. 06-3321 (3d Cir., Aug. 3, 2007).

Congress enacted amendments to the United States Bankruptcy Code in 2005 designed to increase certainty in the marketplace for mortgage loan repurchase agreements and other financial contracts.1 The contours – and limits – of these amendments were recently explored by the Delaware bankruptcy court in Calyon New York Branch v. American Home Mortgage Corp.

The uncertain economic times and high leverage multiples on many loan transactions have combined to create distress in many commercial loan portfolios. An understanding of commercial loan workouts is integral to loan officers, portfolio managers and internal lenders’ counsel.

In the January 2008 issue, we reported on In re Solutia, Inc.,1 decided by the United States Bankruptcy Court for the Southern District of New York. The Solutia court demonstrated how contractual entitlements of debt instruments may be altered in bankruptcy. There, the original issue discount of certain secured notes was found to be interest, rather than principal, causing a significant portion of the noteholders’ claims to be disallowed. In In re Urban Communicators PCS, Ltd.

In a recent adversary proceeding brought by a chapter 7 trustee to recharacterize a creditor’s claim from a debt claim to an equity interest, the United States Bankruptcy Court for the District of South Carolina denied a creditor’s motion to dismiss for failure to state a claim where the trustee had alleged that the lender assumed control over the corporation after the date of the credit agreement.

In In re SNTL Corp.,1 the United States Bankruptcy Appellate Panel of the Ninth Circuit recently decided that if a creditor is required in another proceeding to disgorge as a preference a payment that had been guaranteed by the debtor, the debtor’s liability as guarantor may be revived, provided that the agreement releasing the debtor from its guarantee obligation to the creditor explicitly permits such revival.

Background