Recent Developments in Bankruptcy and Restructuring
Volume 13 l No. 3 l May–June 2014 JONES DAY
Business
Restructuring
Review
Eighth Circuit Expands Subsequent New Value
Preference Defense in Cases Involving Three-Party
Relationships
Charles M Oellermann and Mark G. Douglas
A bankruptcy trustee or chapter 11 debtor-in-possession has the power under section
547 of the Bankruptcy Code to avoid a transfer made immediately prior to
bankruptcy if the transfer unfairly prefers one or more creditors over the rest of

Where an Administrator makes employees redundant ahead of a sale of the business, will it always be a dismissal connected with a transfer (and therefore automatically unfair), or can it ever be for "economic, technical or organisational" (ETO) reasons (and therefore potentially fair)? In Crystal Palace FC Ltd –v- Kavanagh & ors [2013] EWCA Civ 1410, the Court of Appeal found for the latter, a more pragmatic, approach. Motivation, it appears, is everything in such cases. 

Following the culmination of two public comment periods spanning more than a year, the Office of the United States Trustee, a unit of the U.S. Department of Justice (the “DOJ”) assigned to oversee bankruptcy cases, issued new final guidelines on June 11 governing the payment of attorneys’ fees and expenses in large chapter 11 cases—cases with $50 million or more in assets and $50 million or more in liabilities.

One of the prerequisites to confirmation of a cramdown (nonconsensual) chapter 11 plan is that at least one “impaired” class of creditors must vote in favor of the plan. This requirement reflects the basic principle that a plan may not be imposed on a dissident body of stakeholders of which no class has given approval. However, it is sometimes an invitation to creative machinations designed to muster the requisite votes for confirmation of the plan.

In the July/August 2012 edition of the Business Restructuring Review, we reported on a Delaware bankruptcy-court ruling that reignited the debate concerning whether sold or assigned claims can be subject to disallowance under section 502(d) of the Bankruptcy Code on the basis of the seller’s receipt of a voidable transfer. In In re KB Toys, Inc., 470 B.R. 331 (Bankr. D. Del. 2012), the court rejected as unworkable the distinction between a sale and an assignment of a claim for purposes of disallowance that was drawn by the district court in Enron Corp. v. Springfield Associates, L.L.C.

Participants in the multibillion-dollar market for distressed claims and securities have had ample reason to keep a watchful eye on developments in the bankruptcy courts during the last decade. That vigil appeared to have been over five years ago, after a federal district court ruled in the Enron chapter 11 cases that sold claims are generally not subject to equitable subordination or disallowance on the basis of the seller's misconduct or receipt of a voidable transfer. A ruling recently handed down by a Delaware bankruptcy court, however, has reignited the debate.

On December 12, 2011, the Supreme Court granted a petition for certiorari in a case raising the question of whether a debtor's chapter 11 plan is confirmable when it proposes an auction sale of a secured creditor's assets free and clear of liens without permitting that creditor to "credit bid" its claims but instead provides the creditor with the "indubitable equivalent" of its secured claim. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, No. 11-166 (cert. granted Dec. 12, 2011).

In a victory for secured creditors, the Seventh Circuit Court of Appeals recently held inRiver Road Hotel Partners, LLC v. Amalgamated Bank (In re River Road Hotel Partners, LLC), 2011 WL 2547615 (7th Cir. June 28, 2011), that a dissenting class of secured lenders cannot be deprived of the right to credit-bid its claims under a chapter 11 plan that proposes an auction sale of the lenders’ collateral free and clear of liens.

The recent Cour de Cassation ruling in respect of the safeguard proceedings opened by Heart of La Défense SAS ("SAS Holdco") and its parent company, Sarl Dame Luxembourg ("Dame"), overturned the earlier decision of the Paris Court of Appeal in February 2010. The decision reinstated the safeguard proceedings of the two companies that were initiated in November 2008.

Austria has implemented radical changes to its insolvency law and introduced a new restructuring proceeding with self-administration (Sanierungsverfahren mit Eigenverwaltung) in its newly adopted Insolvency Code (Insolvenzordnung, or "IO").[1] One of the main features of the new type of insolvency proceeding is that the insolvent company (the "Debtor") largely remains in control of its business, but under the supervision of a restructuring administrator.

Step-by-Step Guide to the New Austrian Self-Administration Proceeding