The Friday, October 10, 2008, edition of The State newspaper (Columbia, South Carolina) carried an article about the possible Wells Fargo-Wachovia merger. The article stated the merger could cause “major job cuts.” In an economic downturn such as the current one, employees are going to suffer job losses. Any employment attorney will tell you that will result in more employment-related lawsuits being filed by former employees against their former employers. Any bankruptcy attorney will tell you that will result in increased bankruptcy filings.
While the current outlook may be grim for the economy at large, the prospects of individual companies vary significantly, and some companies will continue to perform well despite the larger trends. For example, the designer retailer’s loss may become Walmart’s gain as consumers shop more closely for bargains. As the car manufacturers frequently say, “your mileage may vary.”
Corporate financial uncertainties or troubles frequently require corporate directors to make difficult choices that affect shareholders, creditors and others having an interest in the corporation. In that situation, the question naturally arises: Do directors' duties change when a corporation is experiencing financial difficulties, is nearing insolvency or becomes insolvent? The short answer is that the fiduciary duties of corporate directors under Delaware and Texas corporate law do not change, but that the ultimate beneficiaries of those duties may shift.
As a result of the meltdown of the financial markets, lenders are severely constricting new credit facilities and refusing to renew expiring facilities. The Bankruptcy Code's chapter 11 provides a powerful mechanism for an otherwise viable business to restructure and extend its outstanding debt and in many cases, reduce interest rates on loan facilities.
Last year, the Ninth Circuit BAP determined that the Bankruptcy Code does not permit a secured creditor to credit bid its debt, and purchase estate property free and clear of non-consenting junior liens, outside a plan of reorganization. Uncertainty resulting from the decision in Clear Channel Outdoor, Inc. v. Nancy Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. B.A.P. 2008) may chill bidding and asset sales in the Ninth Circuit.
The U.S. Court of Appeals for the Seventh Circuit ruled in October that a creditor’s misconduct must result in harm to other creditors to justify the equitable subordination of a claim under Section 510(c) of the Bankruptcy Code.
When a creditor seeks equitable relief in a bankruptcy court, must the court always follow common law principles of equity? Not according to several courts, including the Second Circuit. Concluding that the granting of equitable remedies may circumvent the Bankruptcy Code's equitable distribution system, courts have limited the application of equitable remedies in the bankruptcy context.
Introduction
Introduction
In In re Entringer Bakeries, Inc.,1 the United States Court of Appeals for the Fifth Circuit affirmed the viability of the “earmarking doctrine” as a judicially-created defense to a preference action under section 547(b) of the Bankruptcy Code.