On June 28, 2011, the U.S. Court of Appeals for the Seventh Circuit held that secured creditors have a statutory right to credit bid1 their debt at an asset sale conducted under a "cramdown" plan. In re River Road Hotel Partners, LLC, ___ F.3d. ___, 2011 WL 2547615 (7th Cir. June 28, 2011).2 The Seventh Circuit's decision creates a split with recent decisions in the Third and Fifth Circuits regarding a lender's ability to credit bid its secured debt. See In re Philadelphia Newspapers, 599 F.3d 298 (3d Cir. 2010); In re Pacific Lumber, Co., 584 F.3d 229 (5th Cir.
Break-up fees1 remain difficult for initial (or so-called “stalking horse”) bidders to obtain in the Third Circuit. In Kelson Channelview LLC v. Reliant Energy Channelview LP (In re Reliant Energy Channelview LP), No. 09-2074 (3d Cir. Jan.
Lehman Brothers Holdings Inc. and its affiliated debtors (collectively, the “Debtors”) filed a motion in the bankruptcy court on Nov. 13, 2008, asking the court to approve procedures for (i) assuming (affirming) and assigning derivative contracts entered into before the Debtors commenced their bankruptcy cases, including resolving cure amounts; and (ii) entering into settlement agreements that may establish termination payments and the return of collateral under terminated derivative contracts.
Debtors’ Derivative Contracts
SRZ's reorganization group recently helped a lender avoid a surcharge against its collateral for legal fees. U.S. Bankruptcy Judge Arthur N. Votolato of the District of Rhode Island handed the lender the important victory on July 5, 2007, after an earlier trial. In re California Webbing Industries, Inc., 2007 WL 1953018 (Bankr. D. R. I., 7/5/07). In a detailed 22-page opinion, Judge Votolato held that the lender never consented to the use of its collateral to pay the fees of counsel for a Chapter 11 debtor and the creditors' committee in its failed reorganization case.
“… [A]ny sale of [a foreign] debtor[’s] property [in the U.S.] outside of the ordinary course of business can be approved by the bankruptcy court only after notice, hearing, and a finding of good business reasons to permit the sale,” held the U.S. Court of Appeals for the Second Circuit on May 22, 2017. In re Fairfield Sentry Ltd. (“Sentry II”), 2017 U.S. App. LEXIS 8860, at *11 (2d Cir. May 22, 2017).
Insider creditors “waived [the] right to charge default interest on” their claims and “failed to prove” their claim for non-default interest, held the U.S. Bankruptcy Appellate Panel for the Tenth Circuit (“BAP”) on Nov. 6, 2015. In re Autterson, 2015 WL 6789168, at *4 (10th Cir. BAP, Nov. 6, 2015).
Following the Dec. 8 publication by the American Bankruptcy Institute (“ABI”) Commission to Study the Reform of Chapter 11 of a report (the “Report”) recommending changes to Chapter 11 of the Bankruptcy Code (“Code”),[1] we continue to analyze the proposals contained in the ABI’s 400-page Report. One proposal we wanted to immediately highlight would, if adopted, significantly increase the risk profile for secured lenders.
The U.S. Court of Appeals for the Seventh Circuit, on Feb. 14, 2013, held that an insider of a Chapter 11 partnership debtor cannot avoid the “competition rule” in a new-value reorganization plan. The debtor’s equity owner arranged for his wife, also an “insider,” to contribute new value to obtain the equity of the reorganized debtor. In re Castleton Plaza, LP, — F.3d –––, 2013 WL 537269 at *1 (7th Cir., Feb. 14, 2013).
The United States Supreme Court recently submitted to Congress an amendment to Bankruptcy Rule 2019 dealing with disclosure by groups of hedge funds and other distressed investors in reorganization cases. Unless Congress blocks its passage, which is unlikely, the amendment will become effective on Dec. 1, 2011.1 As shown below, the new rule streamlines and clarifies what had become a frequently litigated disclosure process.
Background
In a Jan. 20, 2010, opinion, Judge Christopher S. Sontchi of the U.S. Bankruptcy Court for the District of Delaware held that a group of investors who had together proposed a plan of reorganization for the debtor did not have to comply with the disclosure requirements of Federal Rule of Bankruptcy Procedure 2019 (“Rule 2019”) In re Premier International Holdings, Inc., No. 09-12019 (Bankr. D. Del. Jan. 20, 2010) (Sontchi, J.) (“Six Flags”). In Six Flags, Judge Sontchi expressly disagreed with two prior decisions on the subject of Rule 2019 disclosure, one by Judge Mary K.