In the wake of recent bankruptcy filings by several prominent financial institutions, there’s a growing interest in changing standard credit documentation to address the risks of defaulting lenders and nonperforming administrative agents. Here are credit agreement provisions that financial institutions, acting as swingline lenders and letter of credit issuers, can require to protect themselves against the risk of a defaulting lender.

Directors and officers of troubled companies are already keenly cognizant of their potential liability for any breaches of fiduciary duty, negligence and fraud.

In re Adelphia Communications Corp.,1 the United States Bankruptcy Court for the Southern District of New York recently held that neither a creditor’s aggressive litigation tactics resulting in the creditor’s prospective receipt under a proposed plan of special consideration for voting in favor of the plan, which special consideration other members of the same class that voted against the plan would not obtain, nor the creditor’s ownership of claims in several debtors, in a multi-debtor Chapter 11 case, was a sufficient basis for the “draconian sanction” of disallowing such creditor’s votes

Fraudulent transfer law allows creditors and bankruptcy trustees, under certain circumstances, to sue transferees to recover funds received where a debtor’s transfers to the transferees actually or constructively defrauded its creditors. Under both the Uniform Fraudulent Transfer Act adopted by most states and the fraudulent transfer action created by federal bankruptcy law, a transferee of an alleged fraudulent transfer may assert a defense from such liability by establishing that it received the transfer in good faith and for reasonably equivalent value. See 11 U.S.C.

A recent federal district court appellate decision issued in the Enron chapter 11 case1 has ruled that the postpetition transfer of a prepetition bankruptcy claim from one party to another may insulate the transferred claim against certain types of attack based solely on conduct by a prior holder of the same claim. Whether a particular claim is protected depends upon how the claim was transferred.

Debtors, creditors, purchasers and lenders continue to carefully monitor employee incentive programs after the 2005 changes to Bankruptcy Code brought on by BAPCA. Although many feared the changes to section 503(c) would eliminate an important tool for creating incentives for employees, courts have consistently approved reasonable and well-thought-out incentive programs.

Factual Background

On April 1, 2013, the U.S. Bankruptcy Court for the Eastern District of California ruled that the City of Stockton qualified to file for protection under chapter 9 of the Bankruptcy Code. The court’s decision on this issue serves as an important milestone for chapter 9 jurisprudence, clarifying the requirements for “good faith” negotiations and being “insolvent” as conditions to filing for chapter 9 protection. Significantly, the court held that a municipal debtor need not negotiate with all of its creditors, only those that it intends to impair.

While the Bankruptcy Code’s safe harbor provision in section 546(e) previously provided comfort for brokerdealers, the Bankruptcy Court’s decision in Gredd v. Bear, Stearns Securities Corp. (In re Manhattan Investment Fund, Ltd.), 359 B.R. 510 (Bankr. S.D.N.Y. 2007), chips away at this provision and creates new risks for those providing brokerage account services. Always at risk as a deep pocket, new duties have been thrust upon brokerdealers that go far beyond the terms of the account agreement.

Factual Background

On June 22, 2012, Judge Robert Drain of the United States Bankruptcy Court for the Southern District of New York granted the motion of the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union to dismiss Hostess’s motion to reject certain expired collective bargaining agreements.  The court held that section 1113 of the Bankruptcy Code no longer applied to key portions of the CBAs because the agreements had expired – certain CBA obligations remained in force only by operation of the National Labor Relations Act.  In re Hostess Brands, Inc., 2012 WL 23