In a recent decision, the Bankruptcy Court for the Southern District of New York concluded that an investor in a Real Estate Mortgage Investment Conduit ("REMIC") lacked standing to object to the sale of a chapter 11 debtor's real property, despite that the property served as collateral for loans held in trust by the REMIC for the benefit of its investors.

Under section 363 of the Bankruptcy Code, a trustee or debtor-in-possession may sell property free and clear of “any interest in such property of an entity other than the estate.” Thus, a buyer can generally acquire assets from a bankruptcy estate without subjecting itself to liability or claims based on the seller’s prior actions. InMorgan Olson, LLC v. Frederico (In re Grumman Olson Indus., Inc.), No. 02-16131, 2011 WL 766661 (Bankr. S.D.N.Y.

In general, substantive consolidation allows for the assets and liabilities of affiliated debtor entities to be consolidated and disbursed as if the assets were held and the liabilities were owed by a single legal entity. Unlike joint administration, which promotes procedural convenience and efficiency without affecting the substantive rights of creditors, substantive consolidation can force creditors of a solvent debtor to share in the debtors’ aggregate asset pool in parity with creditors of less solvent debtors.

Plaintiff White Mountains Re, successor in interest to MONY Re, filed an action in the New York Supreme Court against Travelers asserting claims for declaratory judgment and breach of contract arising out of a dispute concerning certain reinsurance contracts. Travelers removed the action to the US District Court for the Southern District of New York and subsequently filed a motion to transfer this action to the District of Connecticut.

In a decision that clarifies the rights of secured lenders to rents generated by a mortgaged property under New York law, a bankruptcy court in the Southern District of New York has held that rents which were assigned pre-petition pursuant to an assignment of rents executed in connection with a mortgage loan do not belong to the bankruptcy estate because the Lender took sufficient affirmative actions to perfect its rights over the rents.1

In In re Young Broadcasting, Inc., et al., 430 B.R. 99 (Bankr. S.D.N.Y. 2010), a bankruptcy court strictly construed the change-in-control provisions of a pre-petition credit agreement and refused to confirm an unsecured creditors' committee's plan of reorganization, which had been premised on the reinstatement of the debtors' accelerated secured debt under Section 1124(2) of the Bankruptcy Code.

Summary

In an opinion published May 20, 2011, Judge Walsh held that a settlement agreement which is rejected in a bankruptcy proceeding is “Core” and will be decided by the Bankruptcy Court, even when it contains a jurisdictional clause that requires the agreement to be interpreted according to the laws of New York. Judge Walsh’s opinion is available here (the “Opinion”).

Background

Section 108 of the Bankruptcy Code grants a two-year extension of time for a trustee in bankruptcy (or a debtor in possession) to bring law suits, provided that the applicable period to sue didn’t expire before the petition date. It also gives a short extension to the trustee for filing pleadings, curing defaults, and performing other acts on behalf of the debtor. These provisions afford a trustee and debtor in possession valuable time to discover and evaluate potential causes of action and to perform other acts to preserve the debtor’s rights.

On June 8, 2011, Governor Andrew M. Cuomo announced the appointment of Assemblyman Jonathan Bing to serve as Special Deputy Superintendent of the New York Liquidation Bureau, an agency tasked with protecting policyholders and creditors of insurance companies that have gone bankrupt.  Bing steps in as the successor to Dennis J. Hayes, who was appointed to the position in September 2009.  Bing’s appointment ends his fifth term in the New York State Assembly, where he has represented the 73rd District since November 2002.

In two recent decisions, the United States Bankruptcy Court for the Southern District of New York has interpreted narrowly certain of the Bankruptcy Code’s safe harbor provisions.