On May 16, the U.S. Supreme Court decided Husky International Electronics, Inc. v. Ritz[1], ruling that the term “actual fraud” in section 523(a)(2)(A) of the Bankruptcy Code includes forms of fraud that do not involve a fraudulent misrepresentation.
The Eleventh Circuit has made it clear: it will not back down from its decision in Crawford v. LVNV Funding, a decision it issued in 2014 and one which has been the subject of hot debate ever since.In Crawford, the Eleventh Circuit ruled that the filing of a proof of claim was an attempt to collect a debt and that the filing of a proof of claim on time barred debt violated the FDCPA. Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014).
The U.S. Court of Appeals for the Fifth Circuit recently held that a transfer of a tax lien to a tax buyer under Texas law does not constitute an extension of credit that is subject to the federal Truth in Lending Act (TILA).
A copy of the opinion is available at: Link to Opinion.
A recent case out of the Southern District of New York, Citibank, NA, London Branch v. Norske Skogindustrier ASA(S.D.N.Y. March 8, 2016), once again illustrates the difficulty of obtaining injunctive relief against prospective indenture violations of a financially troubled issuer.
The Facts
With the current interest being focused on Section 316(b) of the Trust Indenture Act, this may be a good time to examine the differing rights of noteholders under an indenture governed by the TIA and the rights of lenders under credit agreements governed by New York law.
One of the more appealing aspects of the U.S. bankruptcy process is the relative ease in which parties in interest may file proofs of claim. In years passed all it took was to mail in a simple form to the bankruptcy court or claims agent and now it is even easier with the advent of email and electronic claims uploading. This relatively easy process, however, often comes with a plethora of invalid or unenforceable proofs of claim.
A contractual waiver of an entity’s right to file for bankruptcy is generally invalid as a matter of public policy. Nonetheless, lenders sometimes attempt to prevent a borrower from seeking bankruptcy protection by conditioning financing on a covenant, bylaw, or corporate charter provision that restricts the power of the borrower’s governing body to authorize such a filing. One such restriction—a lender-designated “special member” with the power to block a bankruptcy filing—was recently invalidated by the court in In re Lake Mich.
Essentially all securitization structures utilize a bankruptcy remote entity, a/k/a special purpose entity (“SPE”), to reduce the lenders’ or investors’ exposure to a bankruptcy of the sponsor. A standard feature of SPEs is the appointment of an independent person (director, member, manager) to the body managing the SPEs. That independent person’s consent is required for “major decisions,” one of which is the filing of, or consenting to a bankruptcy of the SPE (hence the court’s reference to them as “blocking directors”).
Even before Congress added section 365(c)(3) to the Bankruptcy Code in 1984, it was generally understood that a nonresidential real property lease which has been validly terminated under applicable law prior to a bankruptcy filing by the debtor-former tenant cannot be assumed or assigned in bankruptcy. Moreover, the terminated leasehold interest is excluded from the debtor’s bankruptcy estate, and any action by the landlord to obtain possession of the formerly leased premises is not prohibited by the automatic stay.
Court Looks to the Knowledge of the Transferees in Madoff