Key points:
While DIP Lenders rightfully negotiate for super-priority administrative expenses which trump post conversion chapter 7 administrative expenses, these provisions are not uniformly enforced.
DIP Lenders should require the inclusion of specific language providing that section 364(c)(1) super-priority claims have priority over chapter 7 administrative expense claims, including those to be incurred by a chapter 7 trustee above the agreed upon “burial expenses.”
Bankruptcy courts in the U.S. are widely viewed as favorable fora for debtors, trustees and creditors’ committees to pursue creative and difficult causes of actions against deep-pockets lenders and others in an attempt to augment the resources available for distributions to creditors. In yet another case, however, the District Court for the Southern District of New York (after withdrawing the litigation from the bankruptcy court), recently dismissed many of the claims asserted by the Lehman debtors against J.P. Morgan Chase Bank, N.A.
Introduction
The United States Court of Appeals for the Second Circuit (the “Second Circuit”) on February 7, 2011 issued an opinion rejecting the often used gifting doctrine in the context of a plan of reorganization on the one hand, while affirming vote designation for claims not purchased in good faith on the other.In re DBSD N. Am., Inc., __ F.3d __, 2011 WL 350480 (2d Cir. Feb. 7, 2011).
In a recent decision, the Court of Appeals for the Third Circuit closed the door on triangular setoffs, ruling that the mutuality requirement under Section 553 of the Bankruptcy Code must be strictly construed and requires that the debt and claim sought to be setoff must be between the same two parties. In re: Orexigen Therapeutics, Inc., No. 20-1136 (3d. Cir. 2021).
Background
Confirmation of a Chapter 11 plan generally requires the consent of each impaired class of creditors. A debtor can “cramdown” a plan over creditor dissent, however, as long as at least one class of impaired claims accepts the plan.
Equitable mootness is a judicially created doctrine often applied in appeals from orders of bankruptcy courts confirming chapter 11 plans of reorganization. In instances where granting relief on appeal would result in overturning the confirmation order and therefore unravelling a substantially consummated chapter 11 plan, appellate courts have, in certain circumstances, abstained from deciding appeals in reliance on equitable mootness.
Section 5 of the Securities Act of 1933 prohibits the sale of a security unless a registration statement is in effect. This prohibition on the sale of unregistered securities does not apply to exempt transactions. One such exemption is found in the Bankruptcy Code — section 1145 provides that securities issued under a plan of reorganization may be exempt from the registration requirements of the Securities Act. For debtors, the recent decision of Golden v. Mentor Capital, Inc., 2017 U.S. Dist. LEXIS 153415 (D. Ut. Sept.
A substantive non-consolidation opinion is a common feature of structured finance transactions in the U.S. Most, if not all, opine as to what a bankruptcy court would do, but express no opinion on the appellate process. We would venture a guess that most opinion recipients assume that if the bankruptcy court gets it wrong, their rights will be vindicated on appeal. The Eighth Circuit opinion in Opportunity Finance1 casts a troubling shadow over that assumption.
Background
The U.S. Supreme Court held that a secured creditor in a chapter 7 bankruptcy case is protected from having its lien “stripped off” even if the collateral securing its claim is worth less than the claims asserted by a senior secured creditor; i.e.the junior creditor’s secured claim is completely "out of the money.” The June 1, 2015 decision, Bank of America, N.A. v. Caulkett, reaffirmed the Court’s prior holding in Dewsnup v.