On November 12th, the Third Circuit affirmed both bankruptcy and district court findings that, under the Rooker-Feldman doctrine, federal courts lacked subject matter jurisdiction over a claim seeking rescission of a mortgage filed in an adversarial action in federal bankruptcy court after a state court entered a default foreclosure order on that mortgage. The Third Circuit held further that the entry of summary judgment against plaintiff on her Truth in Lending Act claim was proper.
The Supreme Court of Delaware recently held that creditors of insolvent Delaware limited liability companies (LLCs) lack standing to bring derivative suits on behalf of the LLCs.
In March 2010, CML V brought both derivative and direct claims against the present and former managers of JetDirect Aviation Holdings LLC in the Court of Chancery after JetDirect defaulted on its loan obligations to CML. The Vice Chancellor dismissed all the claims, finding that, as a creditor, CML lacked standing to bring derivative claims on behalf of JetDirect, and CML appealed.
Reversing a controversial decision and judgment of the bankruptcy court, the United States District Court for the Southern District of Florida has held that a group of lenders who received payment in settlement of their defaulted debt from the proceeds of new loans secured by the assets of certain subsidiaries of TOUSA, Inc. which were not themselves liable on that debt, did not receive fraudulent transfers.
On January 25, Judge Peck of the U.S. Bankruptcy Court for the Southern District of New York entered a declaratory judgment in favor of Lehman Brothers Special Financing Inc. (LBSF) in a case examining a collateralized debt obligation (CDO) transaction and concerning the effect of event of default provisions on the payment priorities of LBSF as swap counterparty under certain swap agreements and the holders of certain credit-linked synthetic portfolio notes. The payment waterfalls (Priority Provisions) of most CDO transactions give priority to swap counterparties over noteholders.
On August 11, the Honorable Allan L. Gropper issued an opinion of the U.S. Bankruptcy Court for the Southern District of New York denying five motions to dismiss certain Chapter 11 bankruptcy cases of several property-specific special purpose subsidiaries (SPE Debtors), including a number of issuers of commercial mortgage-backed securities (CMBS), that are owned by mall operator General Growth Properties, Inc.
On December 29, the UK Treasury published a summary of responses to its consultation on its proposals to reform Part 7 of the UK Companies Act 1989 and related legislation. Part 7 of the Companies Act 1989 modifies the UK’s general insolvency law to provide systemic protection for recognized investment exchanges and recognized clearinghouses in the event of a default by one of their members
On November 13, 2008, Lehman Brothers Holdings Inc. and its U.S. affiliates in bankruptcy, including Lehman Brothers Special Financing and Lehman Brothers Commercial Paper (collectively, “Lehman”) filed a motion asking that certain expedited procedures be put in place to allow Lehman to assume, assign or terminate the thousands of executory derivative contracts to which they are a party.
The bankruptcy court overseeing the Lehman Brothers chapter 11 cases rejected efforts by Lehman Brothers Special Financing Inc. (LBSF) to recover roughly $1 billion in payments made to numerous noteholder defendants from the liquidation of collateral originally pledged to secure both obligations under notes issued by special purpose entities and credit default swap (CDS) obligations to LBSF, holding that the termination of the swap and liquidation and distribution of the collateral were protected by the Bankruptcy Code’s safe harbor.
Introduction
In re Zais Investment Grade Ltd. VII1 is the latest in a recent line of bankruptcy cases challenging bedrock assumptions regarding securitization special purpose entities (SPEs) and bankruptcy considerations in securitization transactions.2 Zais establishes precedent allowing a senior noteholder of a collateralized debt obligation (CDO) to place the CDO issuer in an involuntary chapter 11 bankruptcy in order to advance an asset management plan that would otherwise require supermajority approval of all noteholders (including all junior classes) under the related indenture.