The second priority lien held by a junior lien holder is a property interest sufficient to trigger the protection of the automatic stay.In re Three Strokes L.P., 379 B.R. 804 (Bankr. N.D. Tex. 2008). Inasmuch as a senior lien holder’s foreclosure proceedings would have the effect of extinguishing the debtor’s second lien interest, a court may only lift the stay and permit the foreclosure to proceed upon such senior lien holder’s showing of adequate protection.

The Seventh Circuit recently decided that a mortgage that assigns future rental income to the mortgagee creates a security interest that takes priority over a federal tax lien.  Bloomfield State Bank v. United States, No.

Earlier this year, the United States Court of Appeals for the Eleventh Circuit decided in In re Lett that objections to a bankruptcy court’s approval of a cram-down chapter 11 plan on the basis of noncompliance with the “absolute priority rule” may be raised for the first time on appeal. The Eleventh Circuit ruled that “[a] bankruptcy court has an independent obligation to ensure that a proposed plan complies with [the] absolute priority rule before ‘cramming’ that plan down upon dissenting creditor classes,” whether or not stakeholders “formally” object on that basis.

In a ruling that has been described as “very important” and the “first decision of its kind,” bankruptcy judge Shelley C. Chapman of the U.S. Bankruptcy Court for the Southern District of New York held on April 1, 2011, in In re Innkeepers USA Trust, 2011 WL 1206173 (Bankr. S.D.N.Y.

ReGen Capital I, Inc. v. UAL Corporation, et al., (In the Matter of UAL Corporation, et al.), 635 F.3d 312 (7th Cir. 2011).

CASE SNAPSHOT

Summary

In a 14 page opinion published June 7, 2011, Judge Carey ruled that publication of notice in only two newspapers was insufficient information to grant a motion to dismiss based on adequacy of notice. Judge Carey’s opinion is available here (the “Opinion”).

Background

Under the proposed new insolvency regime created by Dodd-Frank, the FDIC may be appointed as receiver of a financial company if it is determined that the financial company is in default or in danger of default, and the failure of the financial company would have serious adverse effects on financial stability in the United States.The receiver is required to liquidate the failing financial company in a manner that imposes all losses on the company’s creditors and shareholders (rather than on taxpayers).

A recent New York bankruptcy case holds that the Bankruptcy Code's limitations on using avoidance actions to undo securities transactions did not apply where the underlying transactions did not implicate the public securities market. A debtor or bankruptcy trustee has the power and obligation to recover transfers made by the debtor, prior to the commencement of the bankruptcy case, that were either actually or constructively fraudulent. There are, however, certain enumerated limitations to this power.

In re Ebadi, No. 10-73702, 2011 WL 1257211 (Bankr. E.D.N.Y. March 30, 2011)

CASE SNAPSHOT

On June 23rd, the First Circuit addressed the priority of claims asserted by senior noteholders and junior noteholders of debt issued by an insolvent bank. It affirmed the bankruptcy court's finding that the parties did not intend for the senior noteholders to receive post-petition interest payments prior to the junior noteholders receiving a distribution. In re: Bank of New England Corporation, Debtor.