A creditor’s ability to vote on a plan of reorganization is one of its most fundamental rights in a chapter 11 bankruptcy. For strategic investors in distressed debt, the power to vote—and potentially control a voting class (or obtain a blocking position in that class)— can be a critical tool in maximizing value and return on investment. Investors should be aware, however, that a recent decision by Judge Robert E.
In March 2008, the Court of Appeals for the Seventh Circuit decided In re Airadigm Communications, Inc. (Airadigm Communications, Inc. v. FCC),1 a case that built upon the Supreme Court’s decision in FCC v. NextWave Personal Communications, Inc (“NextWave”).2 In NextWave, the Supreme Court held that the FCC’s participation in a bankruptcy proceeding is subject to the provisions of the Bankruptcy Code.
Introduction
Several recent bankruptcy decisions rendered in the Third Circuit address whether the disclosure requirements of Rule 2019 of the Federal Rules of Bankruptcy Procedure apply to informal or “ad hoc” committees.1 Although these courts base their reasoning on the “plain meaning” of Rule 2019, their ultimate holdings are inconsistent and have generated renewed interest in this topic among lenders and the investing community. This article provides a brief summary of these recent decisions and examines their inconsistencies.
Introduction
Part One of this article, published in the last edition of the Restructuring Review, examined recent developments in the gaming industry, focusing on strategies employed by gaming companies to increase liquidity and avoid insolvency. Part Two focuses on how potential buyers can use the bankruptcy process to purchase gaming facilities, free and clear of prior liens, and describes certain complications inherent in the acquisition of this type of asset.
Acquiring Gaming Facilities through Chapter 11
Sale Process
In a recent adversary proceeding brought by a chapter 7 trustee to recharacterize a creditor’s claim from a debt claim to an equity interest, the United States Bankruptcy Court for the District of South Carolina denied a creditor’s motion to dismiss for failure to state a claim where the trustee had alleged that the lender assumed control over the corporation after the date of the credit agreement.
On August 11, 2009, in one of the most significant rulings to date in the GGP bankruptcy proceeding, the Bankruptcy Court denied motions to dismiss as bad faith filings the bankruptcy cases of 20 GGP property-level subsidiaries. In denying the motions, the court stated that the fundamental creditor protections negotiated in the special purpose entity structures at the property level are in place and will remain in place during the pendency of the chapter 11 cases.
In the January 2008 issue, we reported on In re Solutia, Inc.,1 decided by the United States Bankruptcy Court for the Southern District of New York. The Solutia court demonstrated how contractual entitlements of debt instruments may be altered in bankruptcy. There, the original issue discount of certain secured notes was found to be interest, rather than principal, causing a significant portion of the noteholders’ claims to be disallowed. In In re Urban Communicators PCS, Ltd.
In a recently filed motion in the United States Bankruptcy Court Southern District of New York (the “Motion”), Lehman Brothers Holdings Inc. (“LBHI”) is seeking to compel Metavante Corporation (“Metavante”) to perform its obligations under a swap agreement between Metavante and Lehman Brothers Special Financing Inc.
The United States Bankruptcy Court for the Southern District of New York has held that a severance payment made to an executive who worked for both Enron Corp. (“Enron”) and various affiliates of Enron prior to Enron’s filing for bankruptcy was a preferential transfer that could be avoided by the Official Committee of Unsecured Creditors (the “Committee”).1 In reaching this conclusion, the Bankruptcy Court rejected the argument that the severance payment was an “ordinary course” transaction that was protected from avoidance.