LevFin Quarterly

Editors' Welcome

Lender's Security Interest in Funds Lost Upon Transfer to Debtor's Counsel

The United States Bankruptcy Code, pursuant to 11 U.S.C. Section 502(b)(6), caps a landlord's claim in bankruptcy for damages resulting from the termination of a real property lease. See In re PPI EnterprisesU.S., 324 F.3d 197, 207 (3rd Cir. 2003). Under Section 502(b)(6), a landlord-creditor is entitled to rent reserve from the greater of one lease year or 15 percent, not to exceed three years, of the remaining lease term.

(Bankr. S.D. Ind. Feb. 15, 2017)

Recoupment is an equitable remedy – not expressly addressed in the Bankruptcy Code – that permits the offset of mutual debts arising out of the same transaction or occurrence. Unlike typical setoff, if recoupment applies, prepetition debts can be set off against postpetition debts. A recent decision from the Delaware bankruptcy court demonstrates that the availability of recoupment often depends on how the court defines the contours of the “same transaction or occurrence” requirement.

The Perishable Agricultural Commodities Act regulates transactions in fresh and frozen fruits and vegetables. It does this in part by creating a general trust for the benefit of produce sellers.

Most restructuring practitioners are aware, either vaguely or through punishing experience, of the power of PACA creditors. PACA (or the Perishable Agricultural Commodities Act, 7 U.S.C. § 499a et seq. for those who hate brevity) requires that buyers of produce hold such produce – and their proceeds – in trust for the benefit of produce sellers.

State and federal laws provide numerous protections to secured parties to preserve their interests in collateral. As secured parties well know, however, these protections become more and more limited when the collateral is pledged to multiple secured parties. Issues, like priority of interests and liens, become more prevalent when the collateral at issue falls in value and multiple secured parties are fighting to enforce their interests in order to satisfy their debts.

On February 8, 2017, the U.S. District Court for the Western District of Oklahoma dismissed the class action lawsuit brought by unsecured bondholders of Chesapeake Energy Corporation ("Chesapeake"), adopting the so-called narrow reading of Section 316(b) of the Trust Indenture Act of 1939 ("TIA").[1]

On February 15, 2017, Calrissian LP, a Burlingame, CA-based entity, filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Case No. 17-10356). Calrissian is the parent holding company of Our Alchemy LLC (Case No. 16-11596) and Anderson Digital LLC (Case No. 16-11597), which filed petitions for relief under Chapter 7 in the Bankruptcy Court for the District of Delaware on July 1, 2016.