In In re New Dragon Toy Wholesale, Inc., Chief Bankruptcy Judge Martin Glenn denied a debtor/tenant’s motion for a temporary restraining order to enjoin a landlord and the New York City marshal from evicting the debtor from a commercial property, holding that the eviction was excepted from the automatic stay since the commercial lease terminated pre-bankruptcy.
Background
The real estate industry forms a significant portion of the flourishing Indian economy. However, it is also plagued with inordinate delays, cash-flow issues and anguished homebuyers. The Insolvency and Bankruptcy Board of India (“IBBI”) has recently added to the array of steps being taken to address these issues.
For RSLs who are routinely contracting with housebuilders for golden brick delivery of affordable housing across multiple phases, we discuss the four key actions that can help if the housebuilder becomes insolvent.
1. Pre-Insolvency – Financial Distress Provisions and Due Diligence
The National Company Law Appellate Tribunal (“NCLAT”) in Anjani Kumar Prashar v. Manab Datta & Ors, Company Appeal (AT) (Ins) No.
Bankruptcy Code Section 502(b)(6) establishes a Statutory Cap on the damages a landlord can claim arising from the termination of a lease in bankruptcy case. Courts have split on how to calculate the Statutory Cap, whether and how to apply letters of credit to reduce the Statutory Cap, and whether the Statutory Cap applies to a landlord’s claims against a lessee’s debtor-guarantor.
On March 26, 2024, the US District Court for the Southern District of New York issued an opinion addressing the foregoing issues:
The Porter Davis liquidation in early 2023 put into sharp focus the practice of some builders taking deposits from owners before obtaining domestic building insurance for their work, insurance that helps to protect owners in the event of a builder’s insolvency.
In the case of Porter Davis, this practice left thousands of owners without insurance to recover the loss of their deposits, leading the State Government to implement a relief scheme to compensate home owners over $28 million, later extended to 20 February 2024 and expanded to other builders in liquidation.
When a bankruptcy debtor rejects a lease, a landlord is entitled to a rejection damages claim. Under Section 502(b)(6) of the Bankruptcy Code, a landlord’s claim is capped at “the rent reserved by such lease, without acceleration, for the greater of one year, or 15%, not to exceed three years, of the remaining term of such lease.”
Courts have taken two different approaches in interpreting what constitutes the “15%” in the statute: (A) the remaining rent due under the lease; or (B) the remaining time under the lease.
The “Rent Approach”
The decision in RPPS v Brookfield is the first recorded instance of s 151 of the PPSA being enforced (with a $30,000 penalty imposed for an improper registration). It serves as a caution to those making spurious registrations, but reasonably diligent and responsible parties should have no cause for alarm.
The Federal Court has recently delivered judgment in the case of Cooper as Liquidator of Runtong Investment and Development Pty Ltd (In Liq)v CEG Direct Securities Pty Ltd [2024] FCA 6, a case where a liquidator was successful in having a mortgage declared as an unreasonable director-related transaction.
Key Takeaways
Landlords might be starting to feel a little uneasy given the news that Superdry is considering a Company Voluntary Arrangement (CVA). Superdry is reportedly working with accountants to hash out a plan that will likely involve shutting down certain stores and cutting rent liabilities. The accountants instructed will be exploring whether either a CVA or a Restructuring Plan - both of which are processes which allow businesses to seek to reduce their liabilities to creditors – would be appropriate.
What exactly is a CVA?