In the wake of recent bankruptcy filings by several prominent financial institutions, there’s a growing interest in changing standard credit documentation to address the risks of defaulting lenders and nonperforming administrative agents. Here are credit agreement provisions that financial institutions, acting as swingline lenders and letter of credit issuers, can require to protect themselves against the risk of a defaulting lender.

The United States Bankruptcy Court for the District of Massachusetts recently denied a mortgage purchaser’s Motion for Relief from Automatic Stay of Chapter 13 proceedings on the ground that the purchaser lacked standing where it could not provide documentary evidence showing each transfer of the mortgage. In re Robin Hayes, Case No. 07-13967-JNF (August 19, 2008).

In November 2004, the Debtor, Robin Hayes, obtained a $324,000 mortgage from Argent Mortgage Company LLC (“Argent Mortgage”). The mortgage subsequently was sold and ultimately ended up with Deutsche Bank.

In Aalfs v. Wirum (In re Straightline Investments, Inc.),1 the United States Court of Appeals for the Ninth Circuit considered whether a post-petition factoring of accounts receivable by the debtor was an avoidable transfer under section 549 of the Bankruptcy Code. The Court of Appeals affirmed the Bankruptcy Court, finding that the post-petition transfer had been properly avoided and that the lower court was justified in allowing the trustee both to recover the accounts receivable and their proceeds and to retain the consideration paid by the transferee.

In Clear Channel Outdoor, Inc. v.Knupfer (In re PW, LLC),1 the United States Bankruptcy Appellate Panel for the Ninth Circuit (the “BAP”) addressed the issue of whether a secured creditor had purchased estate property free and clear of liens, claims and encumbrances outside of a plan of reorganization.

In In re Arch Wireless,1 the United States Court of Appeals for the First Circuit held that a creditor who asserted claims against the debtor in various correspondence between the parties was a “known” claimant of the debtor’s estate entitled to direct notice of the bar date by which it must file a proof of claim. The Court of Appeals concluded that publication notice was insufficient to inform the creditor of the bar date or of the terms of the confirmed plan, even though the creditor was generally aware of the debtor’s bankruptcy filing.

Creditors often consider filing an involuntary bankruptcy petition against their financially distressed debtors. Before using this extraordinary remedy, a creditor should evaluate whether it will achieve a valid business objective. Additionally, each creditor should evaluate whether there is a valid basis to support the filing. When the debtor's bankruptcy is appropriate, it can be a valuable step in maximizing a creditor's recovery. But the stakes are high.

California Coastal Commission, etc., et al. v. Michael A. Allen, ___ Cal. App. 4th ___ (Oct. 1, 2008, Case No. B197974)

In almost all large chapter 11 cases where a debtor leases significant amounts of real property, the debtor’s ability to assume or reject its unexpired leases plays a significant role in the restructuring of the debtor’s business operations.

On November 13, 2008, Lehman Brothers Holdings Inc. and its affiliated debtors in Chapter 11 (collectively, “Lehman”) filed a motion (the “Motion”) seeking Bankruptcy Court approval of procedures (the “Procedures”) for the assumption and assignment of derivative contracts not yet terminated by its various counterparties, as well confirmation of Lehman’s right to enter into settlement agreements for the termination of derivative contracts that have been terminated by its counterparties post-petition.

On Friday, November 14, 2008, the Executive Office for United States Trustees ("EOUST") issued for public comment a notice of proposed rulemaking setting forth procedures and criteria U.S. Trustees will use when considering applicants seeking to become approved providers of a personal financial management instructional course (the "Proposed Rule"). Comments are due by January 13, 2009.

Summary of Key Aspects of the Proposed Rule