One of the hallmarks of chapter 11, and bankruptcy jurisprudence in general in the U.S., is the fundamental right of creditors and other stakeholders to have a meaningful voice in the proceedings concerning matters that affect their economic interests.

Principles of corporate governance that determine how a company functions outside of bankruptcy are transformed and in some cases abrogated once the company files for chapter 11 protection, when the debtor's board and management act as a "debtor-in-possession" ("DIP") that bears fiduciary obligations to the chapter 11 estate and all stakeholders involved in the bankruptcy case.

On January 31, 2008, less than two years after the institution of their bankruptcy cases, Dana Corporation and its affiliated debtor companies became one of the first large manufacturing entities with fully funded exit financing to emerge from chapter 11 under the recently revised Bankruptcy Code.

One of the significant changes brought about by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") was the treatment of loans secured by automobiles in Chapter 13 cases. Prior to BAPCPA, debtors were permitted to "cram down" the secured portions of automobile loans to the fair market value of the collateral. This often resulted in significant reductions to claims secured by automobiles.

A recent ruling in the Delphi Corporation, et al. ("Delphi") bankruptcy case calls into question the effectiveness of power of attorney provisions found in many claim purchase agreements. Specifically, on February 26, 2008, United States Bankruptcy Judge Robert D. Drain, presiding over the Delphi bankruptcy proceeding, held that claims purchasers could not submit cure notices in reliance on powers of attorney.

Delphi Sent Cure Notices Only to Contract Counterparties

On March 26, 2008, the United States Supreme Court heard oral argument in the case of State of Florida Department of Revenue v. Piccadilly Cafeterias, Inc. to consider the United States Court of Appeals for the Eleventh Circuit's ruling that a bankruptcy court may exempt certain state and local taxes in a sale approved prior to confirmation of a chapter 11 plan under § 1146(c) of the Bankruptcy Code.

Introduction

Section 1146(a) (formerly, and for the purposes of this case § 1146(c)) of the Bankruptcy Code provides:

The United States District Court for the Central District of California has reversed a bankruptcy court ruling allowing two law firms—Snyder Miller & Orton LLP (SMO) and Morgan Lewis & Bockius LLP (MLB)—to serve as "special insurance counsel" to address insurance and insurance-coverage-litigation-related matters under the narrow special purpose standards of § 327(e). In re Thorpe Insulation Co., No. CV08-00246-DSF (C.D. Cal. Apr. 22, 2008). Citing In re Congoleum Corp., 426 F.3d 675 (3d Cir.

In CDI Trust v. U.S. Electronics, Inc. (In re Communications Dynamics, Inc.),1 the United States Bankruptcy Court for the District of Delaware addressed the issue of whether a rejection damages claim is subject to setoff against a pre-petition debt owed by the creditor to the debtor. The Court found that a rejection damages claim should be treated as if it arose pre-petition, and that the provisions of section 553 permitted, rather than prevented, the setoff of the rejection damages claim against the pre-petition debt.

Background

As recently reported in our Fall 2007 issue, Judge Lifland’s decision in In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,1 limited the ability of offshore funds in financial distress to utilize chapter 15 of the Bankruptcy Code.

Introduction