Recent Developments in Bankruptcy and Restructuring
Volume 13 l No. 3 l May–June 2014 JONES DAY
Business
Restructuring
Review
Eighth Circuit Expands Subsequent New Value
Preference Defense in Cases Involving Three-Party
Relationships
Charles M Oellermann and Mark G. Douglas
A bankruptcy trustee or chapter 11 debtor-in-possession has the power under section
547 of the Bankruptcy Code to avoid a transfer made immediately prior to
bankruptcy if the transfer unfairly prefers one or more creditors over the rest of

A long-standing legal principle is that liens pass through bankruptcy unaffected. Like every general rule, however, this tenet has exceptions.

In 1984, the Third Circuit was the first court of appeals to examine the Bankruptcy Code’s new definition of “claim” in Avellino & Bienes v. M. Frenville Co. (In re M. Frenville Co.), 744 F.2d 332 (3d Cir. 1984). Focusing on the “right to payment” language in that definition, the court decided that a claim arises when a claimant’s right to payment accrues under applicable nonbankruptcy law. This “accrual” test was widely criticized by other circuit courts as contradicting the broad definition of “claim” envisioned by Congress and the Bankruptcy Code.

In a case of first impression, the Third Circuit Court of Appeals in In re American Home Mortg. Holdings, Inc., 637 F.3d 246 (3d Cir. 2011), held that, for purposes of section 562 of the Bankruptcy Code, a discounted cash flow analysis was a “commercially reasonable determinant” of value for the liquidation of mortgage loans in a repurchase transaction.  

The U.S. Supreme Court’s October 2010 Term (which extends from October 2010 to October 2011, although the Court hears argument only until June or July) officially got underway on October 4, three days after Elena Kagan was formally sworn in as the Court’s 112th Justice and one of three female Justices sitting on the Court.

A creditor’s ability in a bankruptcy case to exercise rights that it has under applicable law to set off an obligation it owes to the debtor against amounts owed by the debtor to it, thereby converting its unsecured claim to a secured claim to the extent of the setoff, is an important entitlement.

2002 was a seminal year for restructuring and insolvency professionals in the U.K. In November of that year, the eagerly anticipated Enterprise Act of 2002, which was intended to lay the statutory foundations for the “rescue culture,” received royal assent. Six months earlier, with considerably less fanfare, the EC Regulation on Insolvency Proceedings (EC No. 1346/2000) (the “Regulation”) was introduced throughout the EU (except Denmark). A clear understanding of how these twin pieces of law operate is crucial when reviewing a stakeholder’s options once a company becomes distressed.

A decision recently handed down by the U.S. District Court for the Western District of Washington should be of interest to lenders and distressed debt purchasers. In Meridian Sunrise Village, LLC v. NB Distressed Debt Investment Fund Ltd. (In re Meridian Sunrise Village, LLC), 2014 BL 62646 (W.D. Wash. Mar. 6, 2014), a lender group had provided $75 million in financing to a company for the purpose of constructing a shopping center.

Unlike in cases filed under other chapters of the Bankruptcy Code, the filing of a petition for recognition of a foreign bankruptcy or insolvency case under chapter 15 does not automatically trigger a stay of actions against a debtor or its U.S. assets. Instead, the automatic stay generally applies only at such time that the U.S.

Affirming the bankruptcy and district courts below, the Third Circuit Court of Appeals, in In re Federal-Mogul Global Inc., 684 F.3d 355 (3d Cir. 2012), held that a debtor could assign insurance policies to an asbestos trust established under section 524(g) of the Bankruptcy Code, notwithstanding anti-assignment provisions in the policies and applicable state law.

Asbestos Trusts in Bankruptcy