Intellectual property rights, such as copyrights, trademarks, and patents, are critical to the operation of many businesses. Often the rights to use intellectual property are dependent upon licenses granting a contractual right to the use of the intellectual property. The bankruptcy of an intellectual property licensor can substantially impact the business of the licensee and the continued right to the use of the licensed intellectual property. Similarly, a bankruptcy filing by a licensee may jeopardize important revenue streams, which a licensor of the intellectual property relies upon.

Boards of directors of troubled companies must balance their fiduciary obligations to shareholders and creditors. Insolvent companies owe duties to creditors and not solely to shareholders and, under evolving case law, companies acting in the "zone of insolvency" owe a duty to creditors as well as to shareholders.

On May 16, 2008, the United States Supreme Court decided Florida Department of Revenue v. Piccadilly Cafeterias, Inc. and ruled that debtors who sell property during the course of a Chapter 11 case prior to the confirmation of a plan cannot use Section 1146(a) of the Bankruptcy Code to exempt those sales from applicable state transfer and stamp taxes.

In Monday’s 7-2 decision in Florida Department of Revenue v. Piccadilly Cafeterias, Inc., the Supreme Court of the United States held that the exemption from state transfer and stamp taxes in Section 1146(a) of the Bankruptcy Code does not apply to transfers that take place prior to the time the Bankruptcy Court confirms a reorganization plan. Section 1146(a) had been cited by bankruptcy debtors and their asset purchasers in seeking tax exemptions for Section 363 sales and other pre-confirmation transfers.

The rapid growth in derivatives as hedging instruments, particularly through equity swaps, credit default swaps ("CDS") and loan credit default swaps ("LCDS"), has challenged fundamental assumptions underlying corporate governance law, federal shareholder disclosure requirements and bankruptcy law. Corporate law has long relied on a "one share one vote" model, which presumes that a shareholder's economic interests in a corporation are inextricably linked to their voting power.

The United States Bankruptcy Court for the Eastern District of Michigan has held that postpetition financing did not receive automatic status as an administrative expense claim under section 346(b) of the Bankruptcy Code. Therefore, the creditor could not object to confirmation of the Debtor’s plan on the grounds that all administrative expense claims would not be paid in full. In re Mayco Plastics, Inc., 379 B.R. 691 (Bankr. E.D. Mich. 2008).

A federal bankruptcy court in Florida has addressed an issue of first impression in its district regarding the degree of error necessary to render a financing statement “seriously misleading” under UCC 9-506.

Previously, we have discussed the risks involved in failing to name the debtor correctly on a financing statement. See CRaB Alert, February 2007, p. 14, “Calling Borrower ‘Mike’ Leads To Failure To Perfect.”

A federal district court in Michigan has affirmed a bankruptcy court’s refusal to accept a higher bid for various estate assets because the bid was made after the close of the auction, albeit prior to the hearing to confirm the auction results. Evangelista v. Opperman (In re Sebert), No. 07-15509 (E.D. Mich. Mar. 11, 2008).

A Pennsylvania state court has reportedly ruled, in an unpublished opinion, that the Pennsylvania Insurance Commissioner may pursue a theory of damages against the accountant of an insolvent insurer based on a legal claim of “deepening insolvency.” SeeArio v. Deloitte & Touche, PICS No. 08-1013 (Pa. Commw. Ct.).

The U.S. Court of Appeals for the Fifth Circuit reversed a bankruptcy court’s equitable subordination order on June 20, 2008. Wooley v. Faulkner (In re SI Restructuring, Inc.), ____ F.3d __, 2008 WL2469406 (5th Cir. 2008). According to the court, subordination of the insiders’ secured claims was “inappropriate” because the bankruptcy trustee had failed to show that the defendant insiders’ “loans to the debtor harmed either the debtor or the general creditors.” Id., at *1. The court also rejected the trustee’s “deepening insolvency” argument on the facts and as a matter of law.