The U.S. Court of Appeals for the Seventh Circuit, on Feb. 14, 2013, held that an insider of a Chapter 11 partnership debtor cannot avoid the “competition rule” in a new-value reorganization plan. The debtor’s equity owner arranged for his wife, also an “insider,” to contribute new value to obtain the equity of the reorganized debtor. In re Castleton Plaza, LP, — F.3d –––, 2013 WL 537269 at *1 (7th Cir., Feb. 14, 2013).
The U.S. Court of Appeals for the Second Circuit, on Dec. 2, 2011, ruled in favor of SRZ client Alfa, S.A.B. de C.V., denying Enron’s petition for rehearing in Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., 651 F.3d 329 (2d Cir. 2011). The court had previously ruled against Enron more than five months ago, holding that its redemptions of commercial paper were “settlement payments” and thus not voidable as preferential or fraudulent transfers under Bankruptcy Code § 546(e), one of the code’s so-called “safe harbor” provisions.
The Bankruptcy Court for the Southern District of New York recently considered the enforceability of claims for "make-whole" amounts and damages for breach of a "no-call" provision. In re Chemtura Corp., No. 09-11233 (Bankr. S.D.N.Y. Oct. 21, 2010) ("Chemtura"). These provisions are generally enforceable outside of bankruptcy, but enforceability in the context of a bankruptcy case is still unclear. In Chemtura, the court did not actually rule on enforceability but approved a settlement that allocated value to creditors on account of a make-whole clause and a no-call provision.
A Florida bankruptcy court, on Oct. 13, 2009, issued a 182-page decision after a 13-day trial, among other things, avoiding on fraudulent transfer grounds (a) secured subsidiary guarantees of $500 million and (b) $420 million pre-bankruptcy payments. In re Tousa, Inc., et al., Case No. 08-10928; Adv. P. 08-1435 (S.D. Fla. Oct. 13, 2009). The decision is on appeal to the district court.
Relevance
The United States District Court for the Southern District of New York recently affirmed a bankruptcy court’s denial of Chapter 15 protection for the U.S. assets of two Cayman Islands hedge funds (the “Funds”) (previously reported in SRZ’s Sept. 19, 2007, Alert, “Cayman Hedge Funds Liquidators’ Request for Chapter 15 Protection Denied by Bankruptcy Court”). See Civ. Case No. 07-8730 (S.D.N.Y. May 27, 2008) (the “Decision”).
A court-approved pre-plan settlement that would have resolved a dispute between a Chapter 11 creditors’ committee and the debtor’s secured lenders over the lenders’ liens was vacated by the U.S. Court of Appeals for the Second Circuit on March 5. Motorola, Inc. v. Official Committee of Unsecured Creditors and J.P. Morgan Chase Bank, N.A. (In re Iridium Operating LLC). The settlement also would have funded massive litigation against the debtor’s former parent, Motorola Inc.
Motorola’s Successful Argument
A bankruptcy court gave “unnecessary and unlikely incorrect” reasoning to support its “excessively broad proposition that sales free and clear under [Bankruptcy Code (“Code”)] Section 363 override, and essentially render nugatory, the critical lessee protections against a debtor-lessor under [Code] 365(h),” said the U.S. Court of Appeals for the Fifth Circuit on Feb. 16, 2022. In re Royal Bistro, LLC, 2022 WL 499938, *1-*2 (5th Cir. Feb. 16, 2022).
Brazos Electric Power Cooperative recently filed for Chapter 11 relief in the U.S. Bankruptcy Court for the Southern District of Texas, weeks after the February ice storm severely disrupted Texas’s electricity supply and prices. Brazos filed for bankruptcy in part to shield its member cooperatives and consumers from liability for invoices totaling over $2.1 billion from the Electric Reliability Council of Texas.
A credit-bidding lender (“Lender”) acquired a debtor’s assets “in ‘good faith’ and ‘without collusion,’ the purchase price ‘was not controlled by any agreement among potential bidders,’ and [Lender] had not ‘engaged in any conduct that would cause or permit the Purchase Agreement to be avoided or costs and damages to be imposed under section 363(n) of the Bankruptcy Code,’” held the U.S. Bankruptcy Court for the Southern District of New York on Sept. 10, 2019. In re Waypoint Leasing Holdings, Ltd., 2019 WL 4273889, *11 (Bankr. S.D.N.Y. Sept. 10, 2019).
A license agreement “deemed rejected by operation of law” could not be acquired under a court-approved asset purchase agreement, held the U.S. Court of Appeals for the Fifth Circuit on Oct. 29, 2018. In re Provider Meds LLC, 2018 WL 5317445, *2 (5th Cir. Oct. 29, 2018). Although the acquirer claimed “that it purchased a patent license from [the] debtors in bankruptcy sales of their estates,” the court explained that “a rejected executory contract … could not have been transferred by the bankruptcy sales in question … .” Id., at *1.