The U.S. Bankruptcy Court for the Southern District of New York issued a decision earlier this year that is likely to have a significant impact on bankruptcy sales of property. In In re New 118th, Inc., 398 B.R. 791 (Bankr. S.D.N.Y. 2009), the court held that certain tax exemptions available pursuant to section 1146(a) of the Bankruptcy Code in connection with transfers of property that occur "under a plan," apply to pre-confirmation sales that close after confirmation and are necessary to the consummation of the debtor's plan.

When the Office of the Comptroller of the Currency placed the $1.9 billion asset-sized ANB Financial, National Association in receivership with the Federal Deposit Insurance Corporation (FDIC) on May 9, 2008, it was one of the largest bank insolvencies in recent years. In a matter of days, plaintiffs’ attorneys were actively seeking future clients. Attorneys ran newspaper advertisements soliciting former employees, depositors and shareholders of the failed Bentonville, Arkansas bank and its holding company.

363 Asset Sales: The Latest Restructuring Tool

Introduction

The dearth of credit available for companies in financial distress means an asset sale may be the only way to save the business and jobs. It also presents unusually attractive investment opportunities for public and private companies, private equity and hedge funds, and other investors with capital and an ability to move expeditiously.

The bankruptcy court's opinion exemplifies the second guessing that can confront solvency opinion providers and highlights issues that providers should carefully vet with experienced legal counsel.

The United States District Court for the Central District of California, applying California law, has granted summary judgment in favor of an insurer because a lawsuit against the insured actuarial services firm was a claim "arising out of the insolvency" of the insured's client and therefore was barred by the policy's insolvency exclusion. Zurich Global Corp. U.K. v. Bickerstaff, Whatley, Ryan & Burkhalter, Inc., 2009 WL 2827969 (C.D. Cal. Aug. 26, 2009).

In a decision that will be of great interest to the creditor community, the US Court of Appeals for the Second Circuit held, on November 5, 2009, that the Bankruptcy Code does not bar an unsecured claim for post-petition attorneys’ fees that was authorized under a valid prepetition contract. The case, Ogle v. Fidelity & Deposit Company of Maryland,1 extends and clarifies the US Supreme Court’s March 2007 decision in the Travelers case,2 which opened the door for such a ruling.

For participants in the over-the-counter ("OTC") derivatives markets, perhaps the most significant recent US legal decision interpreting counterparty rights upon a bankruptcy event of default was the September 15, 2009 bench ruling in the US Lehman Brothers chapter 11 bankruptcy cases, In re Lehman Brothers Holdings, Inc., Case No. 08-13555 et seq. (JMP)(jointly administered) ("Bankruptcy Case").

In a recent holding that a creditor may collect, on an unsecured basis, post-petition attorneys’ fees under an otherwise enforceable pre-petition contract, the Second Circuit Court of Appeals followed a similar ruling by the Ninth Circuit earlier this year, adding to a conflict among the circuits on this issue.

The Commodity Futures Trading Commission is proposing to amend its Bankruptcy Rules to permit the trustee for a bankrupt futures commission merchant to continue to operate the business of the commodity broker in the ordinary course for a limited period of time.

On December 1, 2009, numerous changes to the time periods applicable in bankruptcy cases took effect. These changes, which will impact creditors and debtors alike, are relatively straightforward but must be carefully reviewed and thoroughly understood. Time plays a critical role in the administration of bankruptcy cases, affecting the degree of notice a party is required to give before certain actions can be taken or approved by the bankruptcy court as well as deadlines for filing various documents, asserting various rights and satisfying certain statutory obligations.