What do you get when you combine a 20+ year old bankruptcy, a contaminated landfill, and a state regulatory agency that moves at a glacial pace? The answer: In re Solitron Devices, Inc., a recent decision from the Bankruptcy Court for the Southern District of Florida.

In In re Residential Capital, LLC, the U.S. Bankruptcy Court for the Southern District of New York recently granted an oversecured creditor's request for postpetition interest at the contractual default rate, even though the debtor was insolvent. In doing so, the Bankruptcy Court rejected an argument that awarding postpetition interest at the default rate (which was 4% higher than the non-default rate) would provide an undue windfall to the oversecured creditor and harm unsecured creditors.

Why This Decision Is Important

Recently, the Federal Trade Commission (“FTC”) filed a limited objection in bankruptcy court to the proposed sale of assets of ConnectEdu, Inc. (“ConnectEdu”) on the grounds that the company’s privacy policy protecting customer personal information had potentially not been complied with.

In Weisfelner v. Fund 1 (In re Lyondell Chem. Co.), 503 B.R. 348
(Bankr. S.D.N.Y. 2014), the U.S. Bankruptcy Court for the Southern
District of New York held that the “safe harbor” under section
546(e) of the Bankruptcy Code for settlement payments made
in connection with securities contracts does not preclude
claims brought by a chapter 11 plan litigation trustee on behalf
of creditors under state law to avoid as fraudulent transfers
pre-bankruptcy payments to shareholders in a leveraged buyout

In the March/April 2014 issue of Business Restructuring Review, we discussed a recent trend among bankruptcy courts in the Southern District of New York confirming chapter 11 plans containing provisions that treat the fees and expenses of unofficial committees or individual official committee members as administrative expenses without the need to demonstrate that the applicants made a “substantial contribution” to the estate, as required by sections 503(b)(3)(D) and 503(b)(4) of the Bankruptcy Code. See, e.g., In re AMR Corp., 497 B.R. 690 (Bankr. S.D.N.Y.

On Monday, May 29, 2014, the United States Bankruptcy Court for the Southern District of New York approved Sbarro LLC’s plan of reorganization, paving the way for the pizza restaurant chain to exit bankruptcy.  Sbarro filed for chapter 11 protection earlier this year with a prepackaged plan that allowed its prepetition secured lenders to swap over $148 million in debt for control of the reorganized business if higher or otherwise better purchasers for Sbarro’s business did not overbid.  When no alternative purchasers materialized, Sbarro moved forward with its debt-for-equity swap

The U.S. District Court for the Southern District of New York, on April 27, 2014, issued a decision directing the bankruptcy court to dismiss fraudulent transfer complaints brought by the Madoff Securities Investor Protection Act of 1970 (“SIPA”) trustee against investment funds, their customers and individuals when the trustee failed “plausibly [to] allege that defendant[s] did not act in good faith.” SIPC v. Bernard L. Madoff Inv. Sec. LLC, 2014 WL 1651952, at *5 (S.D.N.Y. April 27, 2014).

Finds Bankruptcy Court to be Proper Forum for Claim Objection Despite Forum Selection Clauses in Investor Agreements

The Southern District of New York recently reiterated the critical difference between creditor claims and equity interests in the bankruptcy context.  In a recent opinion arising out of the Arcapita Bank bankruptcy case, the Court was faced with an objection to a proof of claim filed by an investor, Captain Hani Alsohaibi, who characterized his right to recovery against the debtors as being based on a “corporate investment.”

The District Court for the Southern District of New York recently issued an opinion in Davis v. Elliot Management Corp. (In re Lehman Brothers Holdings Inc.), 2014 U.S. Dist. LEXIS 48102 (S.D.N.Y. Mar. 31, 2014) that will have important implications for individual members of official creditor committees in future cases. 

On June 4, 2014, the New York Court of Appeals will hear arguments arising from the bankruptcies of two law firms—Thelen and Coudert Brothers—as to whether the former partners of the bankrupt law firms must turn over profits earned on billable-hour client matters they brought to their new firms.