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:

In the last issue of Franchise Alert, we discussed how to spot signs of franchisee financial distress at an early stage. Here, we present some steps franchisors can take to deal with financially distressed franchisees.

Update Files

Do officers of a public corporation have an affirmative obligation to monitor corporate affairs? Yes, according to Judge Walsh in his recently issued memorandum opinion in Miller v. McDonald (In re World Health Alternatives, Inc.).1 Although "Caremark" oversight liability had previously generally only been imposed on directors of public corporations, the Bankruptcy Court for the District of Delaware determined that officers are not immune from such liability as a matter of law.

In Geygan v. World Savings Bank, FSB, 2008 FED App. 0005P (6th Cir. B.A.P. Mar. 12, 2008), the Sixth Circuit BAP affirmed the bankruptcy court, holding that the mortgage’s certificate of acknowledgment, which included the phrase “witness my hand” next to the notary’s signature, did not comply with Ohio law, and that the Trustee was a bona fide purchaser pursuant to the U.S. Bankruptcy Code. 

In a May 23, 2008 decision, the United States Bankruptcy Court for the District of Delaware ruled that BBB-rated mortgage-backed notes are eligible for the Bankruptcy Code's repurchase agreement safe harbor as “interests in mortgage loans”. The court also held that a repurchase agreement constituted a sale, as opposed to a financing governed by UCC Article 9 -- the first decision on this topic since the financial contract safe harbors were expanded under the 2005 amendments to the Bankruptcy Code.

In re Bryan Road, LLC, 2008 WL 376773 (Bankr. S.D. Fla. 2008), the Bankruptcy Court for the Southern District of Florida concluded on February 12, 2008, that a borrower could and did waive the protections of the Bankruptcy Code’s automatic stay in a pre-bankruptcy workout agreement with its lender and thus lifted the stay to enable the lender to hold a foreclosure sale.

In response to the increasing complexity of cross-border restructurings and liquidations, a new chapter (Chapter 15) was added to the US Bankruptcy Code in 2005. Chapter 15 is meant to provide a framework for effectively and efficiently dealing with cross-border insolvency proceedings involving the United States by providing the representative of a foreign insolvency case with certain benefits and protections.

Directors and officers of troubled companies are already keenly cognizant of their potential liability for any breaches of fiduciary duty, negligence and fraud.

A federal bankruptcy judge has ordered Wells Fargo to pay $250,000 in sanctions for its role as a trustee for a pooled subprime mortgage trust. In re: Nosek, Case No. 02-46025-JBR (Bankr. D. Mass.).