The US District Court for the Western District of Washington (the "District Court") recently affirmed a bankruptcy court decision that prohibited a transferee of a secured lender's interest in a loan from voting on a debtor's plan of reorganization on the grounds that such transferee, a distressed debt investor, was not an Eligible Assignee under the applicable loan agreement.Meridian Sunrise Village, LLC v. NB Distressed Debt Investment Fund Ltd., et al., No. 13-5503 (W.D. Wash. March 6, 2014) (In re Meridian Sunrise Village, LLC).

Background

In reaction to a decision by the U.S. Court of Appeals for the Fourth Circuit, Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), in which the court held that a licensee of patents, copyrights and trademarks loses its rights if the trustee or debtor in possession rejects a license under the Bankruptcy Code under which the debtor was the licensor, Congress enacted section 365(n) of the Bankruptcy Code (11 U.S.C. § 365(n)).

On June 28, 2011, the United States Court of Appeals for the Seventh Circuit became the latest circuit to weigh in on the hotly contested question of whether a debtor can deny a secured creditor the right to credit bid as part of a Chapter 11 plan providing for the sale of assets encumbered by the secured creditor’s liens. InIn re River Road Hotel Partners, LLC,1 the Seventh Circuit upheld the right of secured creditors to credit bid, a decision that runs directly contrary to recent opinions in the Third and Fifth Circuits.

On March 22, the United States Court of Appeals for the Third Circuit issued a decision that could significantly impact the rights of secured creditors to credit bid in connection with Chapter 11 asset sales under a plan of reorganization.

The United States Bankruptcy Court for the Middle District of Pennsylvania recently found that a bankruptcy trustee could not either pierce the corporate veil of a limited liability company to reach the owners of the LLC, nor could the trustee “reverse-pierce” the corporate veil of the owners of the LLC to reach a separate restaurant business that they owned.

Due to the COVID-19 pandemic, Mexican courts were closed for the past few months and only received urgent cases.

The COVID-19 pandemic has had a negative impact on the Mexican economy. As a result, Mexican courts have seen a rise in insolvency cases, which are not as common in Mexico compared to other jurisdictions, such as the United States. The rise of insolvency cases imposes new challenges to Mexican courts and Mexico’s laws.

Going forward, lenders must take precautionary measures to protect themselves. Anticipating the risk of a U.S. bankruptcy case is a crucial first step.

It is fair to say that not many, if any, banks have internal controls or policies and procedures to identify and mitigate deficiencies in the bankruptcy practices of banks. Indeed, banks typically rely on their Legal Department or external counsel to make sure banks protect their interests when bank customers file bankruptcy. While the Compliance Department and the Risk Management Department track compliance and risks related to numerous laws, rules and regulations, the Bankruptcy Code and its rules are typically not among those laws and rules.

The United States Bankruptcy Court for the Southern District of Ohio, Eastern Division, (“the Court”) held in In re John Joseph Louis Johnson, III, Case No. 14-57104, 2016 WL 1719149, that a creditor violated the automatic stay by seeking to enforce an arbitration award against nondebtor co-defendants. The automatic stay applies not only to stay actions against the debtor personally but also prohibits “any act to … exercise control over property of the [debtor’s bankruptcy] estate.” 11 U.S.C.

Under the Bankruptcy Code, a debtor in possession operates its business “as usual” during the pendency of a case. Likewise, in most cases, prepetition corporate governance practices and procedures should continue post-petition. In fact, as Judge Sontchi recently held in In re SS Body Armor I, Inc., Case No. 10-1125(CSS) (Bankr. D. Del. April 1, 2015), the right of a shareholder to compel a shareholders’ meeting for the purpose of electing a new board of directors continues during bankruptcy.  Absent “clear abuse,” the automatic stay of 11 U.S.C.