A recent appellate decision in the Western District of Washington prohibited hedge fund creditors from voting on a debtor’s chapter 11 plan on the basis that the funds did not qualify as “financial institutions” for purposes of the definition of “Eligible Assignee” under the applicable loan agreement.1 While this counter-intuitive result seems driven by the specific facts of that case, this decision serves as a useful reminder of the importance of carefully reviewing assignment restrictions when purchasing loans in the secondary market.
A federal district court has ruled that a distressed debt fund is not a “financial institution” for purposes of the assignment provisions of a loan agreement.
Background
The Bottom Line:
The United States Court of Appeals for the Seventh Circuit (the “Seventh Circuit”) recently adopted a broad reading of the safe harbor of United States Bankruptcy Code (the “Bankruptcy Code”) § 546(e), which protects from avoidance “settlement payments” and transfers made in connection with a “securities contract,” among other transfers.1 In FCStone, the Seventh Circuit reversed the United States District Court for t
Hopes that certain severance payments paid by companies to terminated employees could escape application of the Federal Insurance Contributions Act (FICA) tax were dashed when a unanimous U.S. Supreme Court ruled on March 25th that such payments, when not tied to state unemployment benefits, were “wages,” and thus taxable. The ruling for the government will allow the IRS to disallow protective refund claims that numerous companies filed after a federal circuit court held that termination payments were not subject to FICA tax.
Assignees of Loan Only Entitled to One Collective Vote on Plan
Purcell brought a lawsuit seeking to recover $85,000 he had lent to Schweitzer. The parties settled, agreeing that Schweitzer would pay the sum of $38,000, along with interest at the rate of 8.5 percent, in installments over 24 months to Purcell. The agreement provided that if Schweitzer failed to pay on time, it would be a breach of the entire agreement and the original liability of $85,000 would be due. The agreement also contained the following language:
The liquidated damages provision does not constitute an unlawful "penalty" or "forfeiture."
The Tenth Circuit Court of Appeals recently considered the question of how much protection is required for a secured creditor to be adequately protected. Banker’s Bank of Kansas, N.A. v. Bluejay Properties, LLC (In re Bluejay Properties, LLC), Bankr. No. 12-22680 (10th Cir. Mar. 12, 2014)(unpublished).
The definition of a family famer under § 101(18)(A) of the Bankruptcy Code is convoluted at best: a family farmer is a farmer whose aggregate noncontingent, liquidated debts arising out of his farming operation make up not less than 50% of his debts; however, the farmer’s debt “for” his principal residence is excluded in making this calculation unless the debt also “arises out of” his farming operation, in which event it is included in making the calculation. In its opinion in First National Bank of Durango v.
CALIFORNIA COURT REFUSES TO ALLOW POST-VERDICT SETOFFS OF POTENTIAL BANKRUPTCY TRUST CLAIMS
Evidence of claims by plaintiffs to asbestos bankruptcy trusts is critical to the defense of any asbestos case. In California, for example, Volkswagen of America Inc. v. Superior Court (Rusk) (2006) 139 Cal.App.4th 1481, highlighted the importance of the discovery of such claims for purposes of setoffs and establishing a defendant’s proportional share of damages.