The U.S. Court of Appeals for the Fifth Circuit, on July 30, 2014, affirmed a district court’s dismissal of a litigation trustee’s $2.5-billion fraudulent transfer suit against the Chapter 11 debtor’s corporate parent based on the debtor’s solvency. U.S. Bank Nat’l Ass’n v. Verizon Communications, Inc., 2014 WL 3746476 (5th Cir. July 30, 2014). The district court, using a market capitalization valuation, found the debtor to be solvent when it closed a major transaction with its parent.

A New York bankruptcy court, on Dec. 12, 2013, issued a 166-page decision after a 34-day trial, concluding that the spin-off of a highly profitable energy business constituted a fraudulent transfer intended to shield the business from massive environmental liabilities, and awarding damages of up to approximately $14.5 billion.^[1]Tronox Inc. et al. v. Kerr McGee et al. (In re Tronox et al.) (Bankruptcy S.D.N.Y. Dec. 12, 2013) (J.

The U.S. Court of Appeals for the Fifth Circuit held on March 1, 2013, that a bankruptcy court had not erred in applying a prime plus 1.75 percent interest rate to a secured lender’s $39 million claim under a "cramdown" plan of reorganization. Wells Fargo Bank N.A v. Texas Grand Prairie Hotel Realty, LLC (In the Matter of Texas Grand Prairie Hotel Realty, LLC), __ F.3d __, 2013 WL 776317 (5th Cir. Mar. 1, 2013).

Revised Bankruptcy Rule 2019, which governs disclosure requirements for groups and committees in Chapter 9 and 11 bankruptcy cases, went into effect on Dec. 1, 2011. The following is a summary of a few key facets of the new rule.

Who?

The United States Supreme Court recently submitted to Congress an amendment to Bankruptcy Rule 2019 dealing with disclosure by groups of hedge funds and other distressed investors in reorganization cases. Unless Congress blocks its passage, which is unlikely, the amendment will become effective on Dec. 1, 2011.1 As shown below, the new rule streamlines and clarifies what had become a frequently litigated disclosure process.

Background

The U.S. Court of Appeals for the Fifth Circuit held on Feb. 10, 2010, that a corporate debtor’s pre-bankruptcy severance payments to its former chief executive officer (“CEO”) were fraudulent transfers. In re Transtexas Gas Corp., ____ F.3d _____, 2010 BL 28145 (5th Cir. 2/10/10). Because of its holding “that the payments were fraudulent under the Bankruptcy Code,” the court did “not consider other possible violations, including [the Texas Uniform Fraudulent Transfer Act] or [Bankruptcy Code] Section 547(b) [preferences].” Id. at *5.

The United States Bankruptcy Court for the Southern District of New York, overseeing the bankruptcy cases of Lehman Brothers Holdings Inc. and its affiliated debtors (collectively, the “Debtors”), entered an order on July 2, 2009 (the “Bar Date Order”), establishing September 22, 2009, at 5:00 p.m. (Eastern Time) as the deadline for the filing of claims against the Debtors (the “Bar Date”).

As a result of the recent turmoil in the financial markets, a number of clients have asked us questions about counterparty risk. The following is a summary of some of the key issues in dealing with financial counterparties. The U.S. Bankruptcy Code (“Bankruptcy Code”) and the Securities Investor Protection Act of 1970, 15 U.S.C. §§ 78aaa et seq. (“SIPA”) each seek to protect “customer property” in the event of the failure, insolvency or liquidation of a broker-dealer.1 Neither affords customers the certainty of a 100% recovery, however.

A court-approved pre-plan settlement that would have resolved a dispute between a Chapter 11 creditors’ committee and the debtor’s secured lenders over the lenders’ liens was vacated by the U.S. Court of Appeals for the Second Circuit on March 5. Motorola, Inc. v. Official Committee of Unsecured Creditors and J.P. Morgan Chase Bank, N.A. (In re Iridium Operating LLC). The settlement also would have funded massive litigation against the debtor’s former parent, Motorola Inc.

Motorola’s Successful Argument

On Dec. 16, 2021, U.S. District Court Judge Colleen McMahon in the Southern District of New York vacated Purdue Pharma’s confirmed plan of reorganization after finding that the Bankruptcy Court below did not have statutory authority to issue a confirmation order granting non-consensual third-party releases — namely for the benefit of the Sackler family who owns Purdue. In re Purdue Pharma, L.P., Case No. 7:21-cv-08566 (S.D.N.Y. Dec. 16, 2021).