A senior creditor can obtain significant leverage over a chapter 11 debtor if it is able to vote not only its claim but the claims of junior creditors in connection with the solicitation of a plan of reorganization. Obtaining such leverage, however, has proven problematic in the past. Among other things, courts have been reluctant to enforce pre-bankruptcy assignments or waivers of voting rights contained in intercreditor agreements, holding that such assignments or waivers may violate the Bankruptcy Code and rules. In Avondale Gateway Center Entitlement, LLC v.
The Fifth Circuit recently issued an opinion addressing an important issue with respect to the preservation of a debtor's causes of action in a Chapter 11 plan of reorganization. The Fifth Circuit held that a reorganized debtor lacked standing to pursue certain common-law claims that were based on the pre-confirmation management of the bankruptcy estate's assets.
The November/December 2007 issue of Insolvency Notes featured an article highlighting a Manhattan-based federal bankruptcy court's refusal to officially recognize proceedings commenced in the Cayman Islands to liquidate two Bear Stearns-managed hedge funds that collapsed in June of that year.
Sometimes the interpretation of the Bankruptcy Code leads to unexpected results. In a recent case, the US Bankruptcy Appellate Panel of the Ninth Circuit (BAP) has ruled that section 510(b) of the Bankruptcy Code requires the subordination of certain claims against a debtor to all equity interests in the debtor, even though such subordination may mean that the holders of the claims will receive nothing on the claims.
Can a United States bankruptcy court deny recognition of a foreign insolvency proceeding even if no one opposes such recognition? In a recent decision, Judge Burton Lifland, a highly respected bankruptcy judge and one of the authors of Chapter 15 of the Bankruptcy Code, says yes.
Liquidators of Bear Stearns Funds Seek Relief under Chapter 15
In a recent decision by the Bankruptcy Court for the Southern District of Texas, In re Scotia Development, LLC,1 Judge Richard S. Schmidt denied the motions of several creditors and the State of California seeking transfer of venue from the Southern District of Texas to the Northern District of California, finding that venue was proper in Texas and that California would not be a more convenient forum for the financial restructuring of the debtors.
Background
In Motorola, Inc. v. Official Committee of Unsecured Creditors (In re Iridium Operating LLC, 478 F.3d 452 (2d Cir. 2007), the Second Circuit held that the most important factor for a bankruptcy court to consider in approving a pre-plan settlement pursuant to Bankruptcy Rule 9019 is whether the settlement’s distribution scheme complies with the Bankruptcy Code’s priority scheme. Prior to this ruling, courts in the Second Circuit generally considered the following factors when approving settlement agreements:
Several recent cases in the United States District Court for the Southern District of New York have created ambiguity about when distressed exchange offers violate Section 316(b) of the 1939 Trust Indenture Act (the “TIA”). It appears that plaintiffs’ lawyers are using this ambiguity to challenge distressed exchange offers. The threat of litigation may give minority bondholders a powerful tool to hinder less than fully consensual out-of-court restructurings and provide them with increased leverage in negotiations.
The Bottom Line:
The Bottom Line: