We recently commented here on the standard for reviewing key employee incentive plans (KEIPs) and the approval of the KEIP in the Velo Holdings chapter 11 cases pending in the Southern District of New York.  On July 24, Bankruptcy Judge Carla Craig of the Eastern District of New York approved a KERP (a key employee retention plan) in the Global Aviation bankruptcy cases aimed at retaining five employees deemed critical to the conso

On May 14, 2012, the United States Court of Appeals for the Third Circuit upheld a ruling by the Bankruptcy Court for the District of New Jersey that the fair market value of a creditor’s collateral as of the plan’s confirmation date is the proper method of valuing a secured creditor’s claim pursuant to section 506(a) of the Bankruptcy Code.  The Third Circuit also adopted a “burden-shifting framework,” finding that a secured creditor will bear the ultimate burden of proving the extent to which its claims are secured pursuant to section 506(a).

Background

The United States Bankruptcy Court for the District of Delaware recently dismissed equitable subordination and fraudulent transfer claims filed by the Official Committee of Unsecured Creditors of Champion Enterprises, Inc. ("Champion") against more than 100 prepetition lenders to Champion (collectively, the "Defendants")1.

Introduction

In a recently filed motion in the United States Bankruptcy Court Southern District of New York (the “Motion”), Lehman Brothers Holdings Inc. (“LBHI”) is seeking to compel Metavante Corporation (“Metavante”) to perform its obligations under a swap agreement between Metavante and Lehman Brothers Special Financing Inc.

In recent opinions, the United States Courts of Appeals for the Fifth and Seventh Circuits have revisited the doctrine of equitable subordination and have underscored the requirement that, before a court can equitably subordinate a creditor’s claim, the court must find that other creditors have been harmed by the actions of the creditor. Importantly, both decisions stress that equitable subordination is meant to be remedial and not punitive, and may not be imposed merely because a creditor has engaged in misconduct.

In Mukamal v. Bakes,1 the trustee of two trusts created under a chapter 11 plan of reorganization filed a complaint (the “Complaint”) against the former directors and officers of the debtors, the dominant shareholders of the debtors and the debtors’ accounting firm, alleging, among other things, various breaches of fiduciary duties.

Creditors have recently made some headway in collecting the full amount to which they are contractually entitled pursuant to various debt instruments. In In re Calpine Corp.,1 reported in our summer 2007 newsletter, the Bankruptcy Court for the Southern District of New York permitted a secured creditor to collect damages (albeit in the form of an unsecured claim) caused by dashed expectations due to the early repayment of its debt.

On February 6, 2015, Judge Francisco Besosa of the U.S. District Court for the District of Puerto Rico held that the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the “Recovery Act”) is expressly preempted by section 903 of the Bankruptcy Code and is therefore unconstitutional.

On January 7, 2013, the Judge Robert D. Drain of the United States Bankruptcy Court for the Southern District of New York held that a dispute concerning the debtors’ use of cash collateral was not subject to arbitration, notwithstanding a broad arbitration clause in the parties’ underlying agreement, because the decision to allow a debtor to use cash collateral constituted a “core” issue and was a fundamental aspect of the bankruptcy process. In re Hostess Brands, Inc., No. 12-22052 (RDD), 2013 WL 82914 (Bankr. S.D.N.Y. Jan. 7, 2013).

Background