Legal Update
September 27, 2013
In re Tribune: Defendants Successfully Challenge Individual
Creditors Standing But District Court Rules that Section 546(e)
Safe Harbor Does Not Bar Individual Creditors’ State Law Based
Constructive Fraudulent Conveyance Claims
On September 23, 2013, the US District Court
for the Southern District of New York in In re
Tribune1 held that the individual creditor suits at
issue were stayed because the Creditors’
Committee was in the process of prosecuting
claims for intentional fraudulent conveyance

The NAIC’s Federal Home Loan Bank Legislation (E) Subgroup (the “FHLB Subgroup”) is considering, among other things, proposed amendments to the Insurer Receivership Model Act (“IRMA”) to provide certain exemptions for security agreements between insurance companies and Federal Home Loan Banks (“FHLBs”).

On April 16, 2013, in Morning Mist Holdings Ltd. v. Krys (In re Fairfield Sentry Ltd.),¹ the US Court of Appeals for the Second Circuit issued an important decision informing fundamental concepts of cross-border insolvency law as implemented pursuant to Chapter 15 of the Bankruptcy Code.

The US Court of Appeals for the Second Circuit recently certified to the New York Court of Appeals two questions concerning the ability of a judgment creditor to garnish accounts of judgment debtors at non-US subsidiaries of banks that have branches in New York or are otherwise subject to jurisdiction in New York.

The Federal Communications Commission recently adopted an order suspending “on an interim basis” its special access pricing flexibility rules.1 The Order states that parties adversely affected by the suspension may seek relief through the forbearance process, and the Commission promised to issue a mandatory data request within 60 days, which will help it subsequently conduct a detailed market analysis of the special access market. The two Republican Commissioners, Robert McDowell and Ajit Pai, dissented.

The U.S. Supreme Court has ruled that a secured creditor cannot be denied its right to “credit bid”—i.e., to offset the amount of its debt against the purchase price of assets, rather than bidding in cash—in sales of collateral undertaken in connection with plans of reorganization under Chapter 11 of the Bankruptcy Code. In so ruling, the Court resolved a widely publicized split of authority among the Circuit Courts of Appeal, and rejected the Third Circuit’s ruling in the Philadelphia Newspapers case.¹

On May 4, 2012, the Delaware bankruptcy court inIn re KB Toys, Inc., et al. (KB Toys), handed down a thoughtful decision addressing the issue of whether impairments attach to a claim or remain with its seller. The KB Toys court held that “a claim in the hands of a transferee has the same rights and disabilities as the claim had in the hands of the original claimant. Disabilities attach to and travel with the claim.”

On May 15, 2012, the Eleventh Circuit Court of Appeals (the “Circuit Court”) issued an opinion in In re TOUSA, Inc.,¹ in which it affirmed the original decision of the bankruptcy court and reversed the appellate decision of the district court. After a 13-day trial, the bankruptcy court had found that liens granted by certain TOUSA subsidiaries (the “Conveying Subsidiaries”) to secure new loans (the “New Term Loans”) incurred to pay off preexisting indebtedness to certain lenders (the “Transeastern Lenders”) were avoidable fraudulent transfers.

On April 19, 2012, the Lehman bankruptcy court handed down its decision on the long-pending motion to dismiss filed by JPMorgan Chase Bank, N.A., in response to Lehman Brothers Holdings Inc.’s $8.6 billion avoidance action against it. The action sought to recover the value of collateral taken by JP Morgan in its role as principal clearing bank to Lehman in the run-up to the Lehman insolvency.

It finally happened. On 12 December 2011, New York Governor Andrew Cuomo signed Senate Bill 2713A into law. The bill, which was passed by the legislature in June, adds important provisions to the New York Insurance Law regarding the treatment of qualified financial contracts in an insurance insolvency proceeding.