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    Clawback of fraudulent transfers from investors—“good faith” defense update
    2010-09-30

    Given the overarching Madoff Ponzi scheme as well as other mini-Madoff schemes that surfaced in its wake, many have been following issues arising from the ability of a trustee to claw back transfers (either as preferential or as fraudulent transfers) from investors who redeemed their interests in a private investment fund or managed account that turned out to be a Ponzi scheme. The law generally provides that an investor’s principal investment is protected so long as it is received in good faith and for value.

    Filed under:
    USA, New York, Capital Markets, Insolvency & Restructuring, Litigation, White Collar Crime, Katten Muchin Rosenman LLP, Fraud, Statute of limitations, Limited liability company, Hedge funds, Legal burden of proof, Good faith, Investment funds, United States bankruptcy court, US District Court for the Southern District of New York
    Authors:
    Anthony L. Paccione
    Location:
    USA
    Firm:
    Katten Muchin Rosenman LLP
    Court grants leave to appeal in Lehman Dante case
    2010-10-07

    On September 20th, the United States District Court for the Southern District of New York granted BNY Corporate Trustee Services Limited ("BNY") leave to appeal the bankruptcy court's decision in the Lehman "Dante" matter. In its January decision, the bankruptcy court had voided certain document provisions providing for the subordination of a swap counterparty's rights to an early termination payment when the swap counterparty or one of its close affiliates went into bankruptcy.‪ BNY holds the collateral subject to this dispute.

    Filed under:
    USA, New York, Insolvency & Restructuring, Litigation, Orrick, Herrington & Sutcliffe LLP, Bankruptcy, Collateral (finance), Swap (finance), Lehman Brothers, United States bankruptcy court
    Authors:
    Nikiforos Mathews , Jim Croke , William S. Haft , Peter C. Manbeck , Al B. Sawyers
    Location:
    USA
    Firm:
    Orrick, Herrington & Sutcliffe LLP
    Subordination is not synonymous with silence
    2010-10-19

    When we last left off, Judge Peck (SDNY) was foiling Cyrus Select Opportunities’ efforts to oppose Ion Media’s chapter 11 plan, while in the Northern District of Texas, Judge Jernigan was putting the stops on Michigan Retirement Systems’ attempt to thwart Erickson Retirement Communities’ allocation of value to PNC Bank

    Filed under:
    USA, New York, Banking, Employee Benefits & Pensions, Insolvency & Restructuring, Litigation, Bracewell LLP, Standing (law), US District Court for the Southern District of New York, US District Court for Northern District of Texas
    Location:
    USA
    Firm:
    Bracewell LLP
    District court grants bny leave to appeal bankruptcy court’s interlocutory order in Lehman, prohibiting enforcement of ipso facto clause in swap
    2010-10-13

    On September 21, 2010, the United States District Court for the Southern District of New York granted BNY Corporate Trustee Services Limited leave to appeal a decision of the Bankruptcy Court in the Lehman Brothers bankruptcy case.1 The Bankruptcy Court held that a key provision of certain transaction documents constituted an unenforceable ipso facto clause. The District Court granted leave to appeal the Bankruptcy Court decision even though it was interlocutory.

    Filed under:
    USA, New York, Insolvency & Restructuring, Litigation, Cadwalader Wickersham & Taft LLP, Bankruptcy, Collateral (finance), Swap (finance), Lehman Brothers cases, Lehman Brothers, Court of Appeal of England & Wales, United States bankruptcy court
    Authors:
    Mark C. Ellenberg
    Location:
    USA
    Firm:
    Cadwalader Wickersham & Taft LLP
    TerreStar Networks seeks bankruptcy protection
    2010-10-22

    Straining under a debt burden in excess of $1 billion, TerreStar Networks filed a petition for Chapter 11 protection with a New York bankruptcy court on Tuesday. Known formerly as Motient Corp., TerreStar is in the midst of deploying a hybrid terrestrial/mobile satellite network that would serve rural and other hard-to-reach areas in the U.S.

    Filed under:
    USA, New York, Insolvency & Restructuring, Litigation, Telecoms, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Bankruptcy, Shareholder, Marketing, Debt, Liability (financial accounting), Legal burden of proof, Balance sheet, US Securities and Exchange Commission, AT&T, EchoStar, United States bankruptcy court
    Authors:
    Patrick S. Campbell
    Location:
    USA
    Firm:
    Paul, Weiss, Rifkind, Wharton & Garrison LLP
    Reversal of decision in Bayou Group bankruptcy offers little guidance for the institutional investor wishing to redeem from a fraudulent ponzi scheme
    2010-10-26

    In a partial reversal of a decision from Bayou Group LLC's bankruptcy case, the US District Court for the Southern District of New York reconsidered a controversial ruling that sent shivers down the spines of institutional investors in 2008. See In re Bayou Group , LLC, No. 09 Civ. 02577 (S.D.N.Y. Sept. 17, 2010).

    Filed under:
    USA, New York, Capital Markets, Insolvency & Restructuring, Litigation, White Collar Crime, Sheppard Mullin Richter & Hampton LLP, Bankruptcy, Fraud, Hedge funds, Liquidation, Trustee, United States bankruptcy court, US District Court for the Southern District of New York
    Location:
    USA
    Firm:
    Sheppard Mullin Richter & Hampton LLP
    Fraudulent conveyance clawback: the "good faith" defense
    2010-10-26

    In a much-followed case given the recent publicity surrounding collapsed Ponzi schemes, the U.S. District Court for the Southern District of New York on September 17, 2010 reversed a decision of the Bankruptcy Court from the Southern District of New York that had broadened the scope of those facts and circumstances that may trigger inquiry notice under the "good faith" defense to a fraudulent conveyance claim. In re Bayou Group, LLC, 2010 U.S. Dist. LEXIS 99590 (S.D.N.Y. September 17, 2010).

    Filed under:
    USA, New York, Capital Markets, Insolvency & Restructuring, Litigation, White Collar Crime, Ropes & Gray LLP, Debtor, Fraud, Limited liability company, Hedge funds, Good faith, Investment funds, Title 11 of the US Code, United States bankruptcy court, US District Court for the Southern District of New York
    Location:
    USA
    Firm:
    Ropes & Gray LLP
    Bankruptcy court permits second lien creditor to oppose bid procedures for judicial sale
    2010-11-04

    A New York bankruptcy judge held on October 4, 2010, that second lien lenders could object to a debtor’s bid procedures approved by the first lien lenders despite the terms of an intercreditor agreement inIn re Boston Generating, LLC, No. 10-14419 (SCC) (Bankr. S.D.N.Y. Oct. 4, 2010).1 The intercreditor agreement provided the first lien lenders with the “exclusive right to…make determinations regarding the…sale” of the collateral. According to the court, however, the agreement did not expressly preclude the second lien lenders from objecting to bid procedures.

    Filed under:
    USA, New York, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Bankruptcy, Debtor, Unsecured debt, Collateral (finance), Waiver, Fiduciary, Debt, Unsecured creditor, Exclusive right
    Authors:
    David M. Hillman , Lawrence S. Goldberg , James T. Bentley
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP
    New York's highest court declines to expand liability of third-party professionals
    2010-11-01

    On October 21, 2010, the New York Court of Appeals ruled on certified questions in two cases: Kirschner v. KPMG LLP ("Kirschner"), certified by the United States Court of Appeals for the Second Circuit, and Teachers' Retirement System of Louisiana v. PricewaterhouseCoopers LLP ("Teachers' Retirement"), certified by the Delaware Supreme Court, reiterating and strengthening the in pari delicto defense.

    Filed under:
    USA, New York, Insolvency & Restructuring, Litigation, Pillsbury Winthrop Shaw Pittman LLP, Bankruptcy, Fraud, Audit, Interest, Investment banking, Derivative suit, Brokerage firm, American International Group, KPMG, Trustee, Second Circuit, Delaware Supreme Court, New York Court of Appeals
    Authors:
    Edward Flanders , Richard L. Epling , Danielle Grinblat
    Location:
    USA
    Firm:
    Pillsbury Winthrop Shaw Pittman LLP
    Contested plan valuation dispute: Chemtura decision highlights valuation issues
    2010-11-16

    The current cycle of Chapter 11 corporate bankruptcies involves many cases where the debtor seeks to achieve a balance-sheet restructuring by converting debt into equity. When consensus cannot be achieved, junior stakeholders (i.e., second lien creditors, unsecured creditors and/or equity) will often contest plan confirmation on the grounds that the proposed plan provides more than 100% recovery to the senior creditors. Valuation plays the central role in these cases.

    Filed under:
    USA, New York, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Bankruptcy, Shareholder, Debtor, Unsecured debt, Debt, Balance sheet, EBITDA, Valuation (finance), Discounted cash flow, US District Court for the Southern District of New York
    Authors:
    David M. Hillman , Christopher Hyde Giampapa
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP

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