A recent decision by the Sixth Circuit Court of Appeals may have muddied the question of the impact of collateral rent assignments on a debtor’s ability to re-organize under chapter 11.
The Madrid and Barcelona Provincial Courts took different positions on the classification of a creditor’s credit in the insolvency of the joint and several guarantor: the former classed it as an insolvency credit; the latter classed it as a contingent claim.
Claims secured with an in rem guarantee continue to accrue default interest charged to the encumbered asset and are classified as privileged.
An oversecured creditor’s right to interest, fees, and related charges as part of its allowed secured claim in a bankruptcy case is well established in U.S. bankruptcy law.
In a tumultuous year that is likely to be remembered for its extreme market volatility, skyrocketing commodity prices (e.g., crude oil hovering at $100 per barrel), a slumping housing market, the weakest U.S. dollar in decades versus major currencies, a ballooning trade deficit with significant overseas trading partners such as China, Japan, and the EU , and an unprecedented proliferation of giant private equity deals that quickly fizzled when the subprime mortgage meltdown made inexpensive corporate credit nearly impossible to come by, 2007 was anything but mundane.
When a retail business becomes a debtor in bankruptcy, it often decides to trim its operations by closing some of its retail stores. This strategy inevitably leaves the debtor with unnecessary leases. Instead of simply rejecting the leases, retail debtors often assume the agreements and assign them to other entities. The assumption and assignment of the unnecessary leases may allow a debtor to avoid potentially significant rejection damage claims from landlords.
Entities doing business with a customer that files for bankruptcy protection generally have the right to refuse to continue providing goods or services to the chapter 11 debtor, unless such goods or services are covered by a continuing contract, in which case any forfeiture of the debtor’s rights under the agreement is generally prohibited to afford the debtor a reasonable opportunity to decide what to do with the contract.
On June 24, 2013, Argentina filed a petition asking the U.S. Supreme Court to review a ruling handed down by the U.S. Court of Appeals for the Second Circuit on October 26, 2012 (see NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir. 2012)) upholding a lower-court order enjoining Argentina from making payments on restructured defaulted debt without making comparable payments to holdout bondholders. On July 26, 2013, the French government filed an amicus curiae (“friend of the court”) brief supporting Argentina’s petition.
Recent Developments
Recent Developments