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    Delaware courts clarify fiduciary duties owed by directors of troubled companies
    2008-10-31

    Two recent decisions by the Delaware Supreme Court clarify the fiduciary duties owed to creditors by directors of Delaware corporations that are insolvent or operating in the zone of insolvency. First, in North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, the Delaware Supreme Court, in a case of first impression, addressed the ability of creditors to assert claims for breach of fiduciary duty against directors of a Delaware corporation that is insolvent or operating within the zone of insolvency.

    Filed under:
    USA, Delaware, Insolvency & Restructuring, Litigation, McDermott Will & Emery, Bankruptcy, Shareholder, Breach of contract, Fiduciary, Board of directors, Beneficiary, Good faith, Business judgement rule, Derivative suit, Delaware General Corporation Law, Delaware Court of Chancery, Delaware Supreme Court, Third Circuit, Court of equity
    Location:
    USA
    Firm:
    McDermott Will & Emery
    Delaware bankruptcy court holds that private equity sale benefits from section 546(e) “settlement payment” safe harbor defense to fraudulent transfer action
    2008-10-31

    The United States Bankruptcy Court for the District of Delaware inElway Company, LLP v. Miller (In re Elrod Holdings Corp.), 2008 WL 4414315 (Bankr. D. Del. Sept. 30, 2008) recently held that transfers in payment of a private stock sale to insiders constituted “settlement payments” under section 546(e) of the Bankruptcy Code and were therefore immune from avoidance as constructively fraudulent transfers by the chapter 7 trustee.

    Filed under:
    USA, Delaware, Corporate Finance/M&A, Insolvency & Restructuring, Litigation, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Public company, Private equity, Security (finance), Fraud, Safe harbor (law), Federal Reporter, Privately held company, Limited partnership, Leveraged buyout, Title 11 of the US Code, Trustee, Delaware Supreme Court, United States bankruptcy court, Third Circuit, US District Court for District of Delaware
    Location:
    USA
    Firm:
    Paul, Weiss, Rifkind, Wharton & Garrison LLP
    Worldspace seeks Chapter 11 bankruptcy protection
    2008-10-24

    WorldSpace, a key provider of satellite radio services to customers living in ten European, African and Asian nations, filed for Chapter 11 protection last Friday before the U.S. Bankruptcy Court in Wilmington, Delaware, listing assets of $307.4 million against debts of $2.12 billion.

    Filed under:
    USA, Delaware, Insolvency & Restructuring, Litigation, Media & Entertainment, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Bankruptcy, ISP, Option (finance), Consideration, Debt, Emerging markets, United States bankruptcy court
    Location:
    USA
    Firm:
    Paul, Weiss, Rifkind, Wharton & Garrison LLP
    Delaware bankruptcy court denies debtors the ability to assume and reject individual leases under a master lease agreement
    2008-10-22

    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.

    Filed under:
    USA, Delaware, Insolvency & Restructuring, Litigation, Real Estate, Jones Day, Debtor, United States bankruptcy court
    Location:
    USA
    Firm:
    Jones Day
    Delaware Bankruptcy Court refuses to grant administrative claim status to employee WARN Act claims
    2008-12-31

    In Henderson v. Powermate Holding Corp. (In re Powermate Holding Corp.)1, the United States Bankruptcy Court for the District of Delaware became the second bankruptcy court to address the status of WARN Act claims after the 2005 amendments to section 503 of the Bankruptcy Code.

    Filed under:
    USA, Delaware, Employment & Labor, Insolvency & Restructuring, Litigation, Cadwalader Wickersham & Taft LLP, Wage, Bankruptcy, Employee Retirement Income Security Act 1974 (USA), Debtor, US Code, Title 11 of the US Code, Worker Adjustment and Retraining Notification Act 1988 (USA), United States bankruptcy court, US District Court for District of Delaware
    Location:
    USA
    Firm:
    Cadwalader Wickersham & Taft LLP
    Bankruptcy court holds inadequate consideration exclusion bars coverage
    2008-12-16

    A federal bankruptcy court, applying New York law, has dismissed an adversary proceeding brought by a bankrupt home mortgage company against its directors and officers liability insurers, holding that coverage for a pre-petition lawsuit against the mortgage company was barred by application of an “inadequate consideration” exclusion. Delta Fin. Corp. v. Westchester Surplus Lines Ins. Co., Case No. 07-11880 (CSS) (Jointly Administered) (Bankr. D. Del. Dec. 15, 2008). The court also held that the coverage dispute was a non-core proceeding.

    Filed under:
    USA, Delaware, Insolvency & Restructuring, Insurance, Litigation, Wiley Rein LLP, Bankruptcy, Costs in English law, Unsecured debt, Waiver, Consideration, Mortgage loan, Fair market value, Holding company, Cashflow, Delaware Supreme Court, United States bankruptcy court
    Location:
    USA
    Firm:
    Wiley Rein LLP
    Fiduciary duties of directors of troubled corporations
    2008-12-15

    Corporate financial uncertainties or troubles frequently require corporate directors to make difficult choices that affect shareholders, creditors and others having an interest in the corporation. In that situation, the question naturally arises: Do directors' duties change when a corporation is experiencing financial difficulties, is nearing insolvency or becomes insolvent? The short answer is that the fiduciary duties of corporate directors under Delaware and Texas corporate law do not change, but that the ultimate beneficiaries of those duties may shift.

    Filed under:
    USA, Delaware, Texas, Company & Commercial, Insolvency & Restructuring, Foley & Lardner LLP, Shareholder, Breach of contract, Fiduciary, Board of directors, Interest, Misconduct, Beneficiary, Articles of incorporation, Good faith, Summary offence, Duty of care, Balance sheet, Stakeholder (corporate), Business judgement rule, Derivative suit, Directors' duties
    Location:
    USA
    Firm:
    Foley & Lardner LLP
    Tribune seeks Chapter 11 bankruptcy protection
    2008-12-12

    Buckling under roughly $13 billion in debt, broadcast and print media giant Tribune sought protection from creditors with the filing of a Chapter 11 petition in a Delaware bankruptcy court on Monday. Based in Chicago, the Tribune Company owns the Chicago Tribune, the Los Angeles Times, and ten other newspaper properties scattered across the nation’s largest media markets. The company also owns 23 broadcast television stations, cable TV super station WGN, major league baseball’s Chicago Cubs, and Wrigley Field.

    Filed under:
    USA, Delaware, Insolvency & Restructuring, Litigation, Media & Entertainment, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Bankruptcy, Advertising, Debt, Entrepreneurship, United States bankruptcy court
    Location:
    USA
    Firm:
    Paul, Weiss, Rifkind, Wharton & Garrison LLP
    Bankruptcy Court: parties may not contract around mutuality requirement to circumvent prohibition against triangular setoffs
    2009-01-14

    The decision in In re SemCrude, L.P., et al. prohibiting parties from contracting around Bankruptcy Code section 553’s mutuality requirement may disrupt customary business practices, including those widely used in the energy, natural gas and crude oil markets, because it rules that contracting for cross affiliate netting does not “create” the mutuality required for setoff.

    Filed under:
    USA, Delaware, Energy & Natural Resources, Insolvency & Restructuring, Litigation, McDermott Will & Emery, Contractual term, Bankruptcy, Debtor, Natural gas, Debt, Chevron Corporation, United States bankruptcy court, US District Court for District of Delaware
    Location:
    USA
    Firm:
    McDermott Will & Emery
    Delaware Bankruptcy Court decision in SemCrude poses setback to triangular set-off
    2009-01-16

    The United States Bankruptcy Court for the District of Delaware has ruled that a creditor cannot effect a “triangular” setoff of the amounts owed between it and three affiliated debtors, despite pre-petition contracts that expressly contemplated multiparty setoff. In re SemCrude, L.P., Case No. 08-11525 (BLS), 2009 WL 68873 (Bankr. D. Del. Jan. 9, 2009). The Court relied principally on the plain language of section 553(a) of the United States Bankruptcy Code, which limits setoff to mutual obligations between a debtor and a single nondebtor.

    Filed under:
    USA, Delaware, Insolvency & Restructuring, Litigation, Cadwalader Wickersham & Taft LLP, Debtor, Federal Reporter, Swap (finance), Debt, Limited partnership, Subsidiary, Chevron Corporation, Title 11 of the US Code, Second Circuit, Delaware Supreme Court, United States bankruptcy court, Seventh Circuit, US District Court for District of Delaware
    Location:
    USA
    Firm:
    Cadwalader Wickersham & Taft LLP

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