A fundamental premise of chapter 11 is that a debtor’s prebankruptcy management is presumed to provide the most capable and dedicated leadership for the company and should be allowed to continue operating the company’s business and managing its assets in bankruptcy while devising a viable business plan or other workable exit strategy. The chapter 11 “debtor-in-possession” (“DIP ”) is a concept rooted strongly in modern U.S. bankruptcy jurisprudence. Still, the presumption can be overcome.

Executive Life Insurance Company of New York (ELNY) was placed into rehabilitation in 1991 after affiliated companies became insolvent and concerns about its future solvency arose. The rehabilitation plan adopted in 1992 involved the transfer of much of ELNY's business to another carrier; however, ELNY in rehabilitation retained substantial assets and continued payment on certain annuities, with the bulk of the payout going to structured settlement annuitants that had received long-term and/or lifetime annuities as settlements in personal injury lawsuits.

The Bankruptcy Code facilitates asset sales in chapter 11 by offering incentives to buyers and flexibility in structuring and timing the sale. A buyer can acquire assets free and clear of liens and is permitted to "cherry-pick" the debtor's contracts and leases to select only those it wants to keep. The assets and sale process can be structured in many ways, including auctions, private sales, lot or bulk sales, and going concern transactions.

The Key Parties

Must a foreign debtor's insolvency representative obtain permission from a United States bankruptcy court before exercising the debtor's rights as shareholder to remove and replace directors and officers of a US corporation? The Bankruptcy Appellate Panel (BAP) of the Ninth Circuit recently held not, provided that the representative does not require judicial assistance to exercise these rights.1

By Order, dated January 14, 2008, United States Bankruptcy Judge Martin Glenn for the United States Bankruptcy Court for the Southern District of New York, granted the motion (the "Motion") filed by a group of creditors seeking transfer of venue of the Dunmore Homes, Inc. (the "Debtor") bankruptcy case from the United States Bankruptcy Court for the Southern District of New York (the "Court") to the Eastern District of California, Sacramento Division. A number of other creditors and the Official Unsecured Creditors Committee joined in the Motion.

In a tumultuous year that is likely to be remembered for its extreme market volatility, skyrocketing commodity prices (e.g., crude oil hovering at $100 per barrel), a slumping housing market, the weakest U.S. dollar in decades versus major currencies, a ballooning trade deficit with significant overseas trading partners such as China, Japan, and the EU , and an unprecedented proliferation of giant private equity deals that quickly fizzled when the subprime mortgage meltdown made inexpensive corporate credit nearly impossible to come by, 2007 was anything but mundane.

Two circuit courts of appeal recently addressed whether a company filing chapter 11 for the sole purpose of retaining vital leases did so in good faith. In In re Capitol Food of Fields Corner, the First Circuit, in a matter of first impression on the issue of chapter 11’s implied good-faith filing requirement, declined to address the broader question, concluding that even if there is a good-faith filing requirement, a prima facie showing of bad faith could not be met because the debtor articulated several legitimate reasons for the necessity of reorganizing under chapter 11.

The uncertain economic times and high leverage multiples on many loan transactions have combined to create distress in many commercial loan portfolios. An understanding of commercial loan workouts is integral to loan officers, portfolio managers and internal lenders’ counsel.

As a result of the recent turmoil in the financial markets, a number of clients have asked us questions about counterparty risk. The following is a summary of some of the key issues in dealing with financial counterparties. The U.S. Bankruptcy Code (“Bankruptcy Code”) and the Securities Investor Protection Act of 1970, 15 U.S.C. §§ 78aaa et seq. (“SIPA”) each seek to protect “customer property” in the event of the failure, insolvency or liquidation of a broker-dealer.1 Neither affords customers the certainty of a 100% recovery, however.

The auto parts supply industry has been beset by financial problems for several decades. Original equipment manufacturers ("OEMs") typically have the right to immediately seize their tooling, which the supplier holds in order to make parts. This allows OEMs to quickly move the tooling to another supplier and avoid an assembly line shutdown if the supplier fails. The right to immediately reclaim tooling, however, may be restricted if the supplier files for bankruptcy.