On April 25, 2011, as widely expected, a group of Lehman creditors holding claims arising from terminated derivatives transactions filed a competing plan of reorganization and related disclosure statement in the Debtors' chapter 11 cases. As a result of the new filing, there are now three competing plans – (1) the Debtors’ Plan, (2) the Ad Hoc Group’s Plan (filed by a group of bondholder creditors) and (3) the Non-Consolidation Plan (filed by the derivative claimants) - in the Lehman bankruptcy proceedings.
The International Swaps and Derivatives Association, Inc. (“ISDA”) is preparing forms of amendment to its boilerplate master agreements in connection with market practice relating to the suspension of payments by a non-defaulting party. ISDA is also considering a protocol to implement the amendments into existing agreements on a multilateral basis.
In a decision entirely consistent with its ruling in the “Perpetual” adversary proceeding last year, on May 12, 2011, the United States Bankruptcy Court in the Lehman chapter 11 cases endorsed a strict interpretation of certain Bankruptcy Code provisions to the benefit of Lehman, which will result in Lehman having more leverage in its negotiations with derivatives counterparties. See Lehman Brothers Special Financing Inc. v. Ballyrock ABS CDO 2007-1 Limited and Wells Fargo Bank, N.A., Trustee, Adv. Proc. 09-01032 (Bankr. S.D.N.Y. May 12, 2011).
The well known travails of Fred Wilpon, the principal owner of the New York Mets, have all converged this past week. He, his partner Saul Katz and their families and affiliated enterprises (the “Wilpon/Katz Group”) lost several hundred million dollars when Bernard Madoff’s long running Ponzi scheme finally unraveled at the height of the financial crisis in 2008.
In two recent decisions, the United States Bankruptcy Court for the Southern District of New York has interpreted narrowly certain of the Bankruptcy Code’s safe harbor provisions.
On January 25, 2010, United States Bankruptcy Court Judge James M. Peck issued a decision that limited the ability of parties to swap transactions to enforce certain of their contractual rights against a counterparty that has filed for bankruptcy. See Lehman Brothers Special Financing Inc. v. BNY Corporate Trustee Services Ltd.1 (the “BNY Decision”).
In Lehman Brothers Special Financing, Inc. v. Ballyrock ABS CDO 2007-1 Limited (In re Lehman Brothers Holdings, Inc.), Adv. P. No. 09-01032 (JMP) (Bankr. S.D.N.Y. May 12, 2011) [hereinafter “Ballyrock”], the United States Bankruptcy Court for the Southern District of New York held that a contractual provision that subordinates the priority of a termination payment owing under a credit default swap (CDS) to a debtor in bankruptcy, and which caps the amount of the termination payment, may be an unenforceable ipso facto clause under section 541(c)(1)(B).
The trustee for the liquidation of MF Global Inc. is seeking permission from the bankruptcy judge overseeing the firm’s dissolution to make a distribution of US $461 million to unsecured general creditors. If approved, this distribution would result in total distributions to unsecured general creditors of 72 percent of their approved claims. To date, the trustee has distributed 100 percent of approved claims of MF Global’s customers (totaling US $6.7 billion), and 100 percent of approved secured, priority and administrative claims.
On May 30, 2014, hedge fund Moore Capital (Moore) brought suit against the Lehman Brothers bankruptcy estate (Lehman) in the Southern District of New York bankruptcy court, seeking a declaratory judgment that it acted properly when it terminated swap agreements and setoff termination amounts in the time between the filing of the parent company Lehman Brothers Holdings Inc. (LBHI) and the eve of bankruptcy filings weeks later of Moore’s Lehman counterparties1.
In the March/April 2014 issue of Business Restructuring Review, we discussed a recent trend among bankruptcy courts in the Southern District of New York confirming chapter 11 plans containing provisions that treat the fees and expenses of unofficial committees or individual official committee members as administrative expenses without the need to demonstrate that the applicants made a “substantial contribution” to the estate, as required by sections 503(b)(3)(D) and 503(b)(4) of the Bankruptcy Code. See, e.g., In re AMR Corp., 497 B.R. 690 (Bankr. S.D.N.Y.