INTRODUCTION

In times of unprecedented market uncertainty, assessing financial exposure to your counterparties is essential. Volatility in the commodities markets and a public health crisis create the perfect storm for financial distress for companies in nearly every industry. Risk is inherent in business and that risk is heightened when you are dealing with a company in financial distress. Managing these risks begins with knowing your counterparties and understanding your legal position with respect to those counterparties.

Countries across the world are actively taking measures to stem the spread of COVID-19 by encouraging and, in some cases, forcing social distancing. One of the most common measures employed so far is the closing of non-essential stores, bars and restaurants for several weeks, if not longer. Several large retailers, such as JCPenney, Ross Stores, Kirkland’s Inc., Marshalls and TJ Maxx, have announced store closings for two weeks in efforts to help stop the spread of COVID-19.

During these uncertain times, bankruptcy courts across the country remain steadfast in their commitment to serve the public and provide critical relief to debtor companies and their many constituents, including employees, lenders, and other parties in interest. To address public concern about COVID-19 and to protect all parties, many bankruptcy courts have issued general orders implementing procedures and adopting protocols that balance public health and safety with parties’ need for emergency relief from the court.

Bankruptcy filings of big box retailers such as Sears, Shopko and Charming Charlie have left landlords with difficult space to fill, especially at a time when few retailers are looking to expand and open new brick-and-mortar stores. Charming Charlie will close all of its 261 stores in 2019 (35 of which are located in Texas) while Sears announced 80 new store closures at the beginning of 2019 in addition to the 220 store closures it announced last year. Sears owned 687 stores at the time it filed for Chapter 11 bankruptcy last October.

Yesterday, in Mission Product Holdings v. Tempnology LLC, the Supreme Court held that a trademark licensee may continue using a licensed trademark after its licensor files for bankruptcy and rejects the relevant license agreement. While a debtor-licensor may "reject" a trademark license agreement under Section 365 of the Bankruptcy Code, such rejection is only a breach of the agreement and does not allow the licensor to revoke the licensee's rights.

New York and Delaware courts resolved two coverage issues in favor of directors and officers of real estate investment trust advisory companies in lawsuits against their liability insurers. Both decisions arise out of ongoing coverage disputes related to allegations of fraud and other wrongdoing in connection with accounting irregularities.

On March 27, 2019, the United States Bankruptcy Court for the Northern District of West Virginia issued an opinion holding that an over-secured creditor could not recover a portion of the creditor's attorney's fees incurred in connection with the borrower's bankruptcy proceeding despite provisions in the loan agreement that provided for recovery of attorney's fees "incurred in connection with the enforcement" of the loan documents.

The U.S. Supreme Court recently scrutinized the proper application of the safe harbor found in Section 546(e) of the U.S. Bankruptcy Code1 in Merit Management Group, LP v. FTI Consulting Inc.2 While the Supreme Court's decision narrowed the reach of the safe harbor, it did little to change the landscape for the multi-billion dollar U.S. structured finance industry, including warehouse lending.

On February 27, 2018, the United States Supreme Court in a significant ruling held in Merit Management Group, LP v. FTI Consulting, Inc. that transfers of property of a debtor in which financial institutions are mere conduits or intermediaries may be avoidable. The Court ruled that the safe harbor provisions of section 546(e) of the Bankruptcy Code do not protect such transfers from avoidance.

The Bankruptcy Code prohibits a chapter 13 debtor from modifying a mortgage lien on the debtor's principal residence. Even in situations in which a secured creditor fails to file a proof of claim or otherwise participate in the bankruptcy proceeding, the Bankruptcy Code allows a secured creditor's lien on a primary residence to pass through the bankruptcy unaffected. However, a recent decision from a bankruptcy court in Texas illustrates the risks to secured creditors of blind reliance on these statutory protections.