On a matter of first impression, the Fourth Circuit issued an opinion in the Derivium Capital, LLC bankruptcy case on May 24, 2013,1 affirming the District Court’s ruling that Grayson Consulting Inc. ("Grayson"), the chapter 7 Trustee’s assignee, could not avoid as fraudulent conveyances Wachovia’s2 commissions, fees, and margin interest payments because those payments were protected from recovery by the safe harbor of United States Bankruptcy Code (the "Bankruptcy Code") section 546(e).

In In re Village at Lakeridge, LLC, BAP Nos. 12-1456, 12-1474 (B.A.P. 9th Cir. Apr. 5, 2013), the Bankruptcy Appellate Panel of the Ninth Circuit clarified that, in order to apply the common interest doctrine, a trial court must make a finding that the parties expressly or implicitly agreed to participate in a joint legal strategy. In this case, secured creditor, US Bank, deposed the sole unsecured creditor, Rabkin.

Lehman is demanding millions of dollars from non-profits

As widely reported, in the latest Lehman bankruptcy “fundraiser,” managers of the Lehman estate are now demanding millions of dollars from non-profit retirement homes, colleges and hospitals.  Lehman claims that it was somehow “shortchanged” by multiple non-profit organizations that were forced to pay to exit derivatives that were unwound as a result of Le

A new Illinois law will close a loophole through which some mortgages could be subject to avoidance in bankruptcy.  The loophole, created by U.S. Bankruptcy Court’s (C.D. Illinois) 2012 In re Crane opinion, allowed a bankruptcy trustee to avoid a mortgage under 11 U.S.C. § 544(a)(3) unless it contained, among other provisions: 1) the amount owed, 2) the debt’s maturity date and 3) the underlying interest rate. 

An important decision by Judge Kevin Carey of the United States Bankruptcy Court for the District of Delaware recently focused the distressed debt market (and financial creditors in general) on the proper legal characterization of a common financing provision — the “make-whole premium.”¹ Judge Carey allowed a lender’s claim in bankruptcy for the full amount of a large make-whole premium, after denying a motion by the Unsecured Creditors’ Committee to disallow the claim.

 WHY DOES THIS DECISION MATTER?

I. Introduction

On April 22, 2013, the U.S. Bankruptcy Court for the District of Delaware in In re School Specialty upheld the enforceability of a make-whole premium triggered by the pre-petition acceleration of a secured term loan.1 The decision re-affirms that bankruptcy courts will respect properly drafted make-whole premiums that pass muster under applicable state law.

In AMR Corporation, et al., Debtors, Case No. 12-3967, 2013 WL 1339123 (S.D.N.Y. April 3, 2013), the United States District Court for the Southern District of New York acknowledged that to be granted relief from the automatic stay under 11 U.S.C. § 362(d), a secured creditor has the initial burden to show that there has been a decline—or at least a risk of decline—in the value of its collateral. Only then will the burden shift to the debtor to prove that the value of the collateral is not, in fact, declining.

On the somewhat unusual occasions when your judgment debtor has assets, the question turns to how do I maximize my judgment and collect every penny legitimately owed to my client?  Here are some thoughts:

On April 22, 2013, Judge Kevin J. Carey of the Bankruptcy Court for the District of Delaware allowed a lender’s $23.7 million pre-petition make-whole claim, representing approximately 37% of the outstanding principal of the loan, in the Chapter 11 case of School Specialty, Inc. ¹ In a decision that will win cheers from the lending community, the court enforced the clear terms of the loan agreement over the objection of the Official Unsecured Creditors’ Committee, holding that the make-whole claim was enforceable under New York law.

BACKGROUND

A lender’s right to recover a make-whole premium as part of its allowed claim in a bankruptcy case has been the subject of several recent court decisions. A Delaware bankruptcy court recently allowed a make-whole premium of $23.7 million on a $67 million term loan^[1] and found that the premium was not “plainly disproportionate” to the creditor’s possible loss. As a result, the make-whole was not an unenforceable penalty under New York law. In re School Specialty, Inc., No. 13-10125, Slip Op. (Bankr. D. Del. Apr. 22, 2013).^[2]

Facts