Courts faced with the task of unraveling the results of the recent credit crisis are being called upon to scrutinize lending agreements—many of which are complex and often previously uninterpreted. The review of these agreements is a reminder to signatory parties of the importance of fully understanding their obligations upfront.
The question, “Can we get them to agree not to file bankruptcy in the future?” must be near the top of the list of questions clients most commonly ask their transactions and workout lawyers.
Most lawyers fielding this question are likely to explain that such an agreement is not enforceable under bankruptcy law. Good lawyers then suggest that in certain situations, an agreement for the entry of an order lifting the automatic bankruptcy stay, or an agreement not to oppose a lift-stay motion if the other side files a bankruptcy petition, may be enforceable.
Adjustable rate mortgages began to reset just as the economic outlook for subprime borrowers soured. Defaults on subprime debt inevitably followed. The onslaught of litigation against all players in the subprime lending arena followed just as inevitably.
The Ninth Circuit Bankruptcy Appellate Panel has issued a pair of rulings in a case involving high-stakes litigation—with a claim in excess of $230 million, including $3 million in postpetition attorneys’ fees and costs. Beyond the high stakes, the court’s conclusions in Centre Ins. Co. v. SNTL Corp. (In re SNTL Corp.), 380 B.R. 204 (9th Cir. BAP 2007) have far-reaching implications; they are likely to affect a multitude of financing transactions that become entangled in bankruptcy.
The United States Bankruptcy Court for the Eastern District of Michigan has held that postpetition financing did not receive automatic status as an administrative expense claim under section 346(b) of the Bankruptcy Code. Therefore, the creditor could not object to confirmation of the Debtor’s plan on the grounds that all administrative expense claims would not be paid in full. In re Mayco Plastics, Inc., 379 B.R. 691 (Bankr. E.D. Mich. 2008).
A federal bankruptcy court in Florida has addressed an issue of first impression in its district regarding the degree of error necessary to render a financing statement “seriously misleading” under UCC 9-506.
Previously, we have discussed the risks involved in failing to name the debtor correctly on a financing statement. See CRaB Alert, February 2007, p. 14, “Calling Borrower ‘Mike’ Leads To Failure To Perfect.”
A federal district court in Michigan has affirmed a bankruptcy court’s refusal to accept a higher bid for various estate assets because the bid was made after the close of the auction, albeit prior to the hearing to confirm the auction results. Evangelista v. Opperman (In re Sebert), No. 07-15509 (E.D. Mich. Mar. 11, 2008).
Early this morning, Lehman Brothers Holdings, Inc. filed a notice, concerning the possible assumption and assignment of executory contracts to Barclays Capital as part of its purchase of the core assets of Lehman Brothers' U.S. broker-dealer business.
In the current economic climate, businesses are likely to take a keen interest in the ability of their suppliers and customers to meet their obligations. This can extend beyond purely financial obligations to include the protection of critical links in the supply chain. A manufacturer may, for instance, be very dependent on one of its suppliers for a specialist part that cannot readily be obtained elsewhere, or a supplier may rely heavily on an intermediary to reach ultimate consumers.
Attention holiday shoppers. Not sure what to buy Aunt Matilda or cousin George? A gift card allows them to buy whatever they like? Maybe. Large retailers such as Sharper Image, Bombay Company and Linens ‘N Things have filed for bankruptcy or gone out of business, leaving behind millions of dollars in unused gift cards. In bankruptcy, money left on a gift card is treated as a debt, which the bankruptcy court can decide if it is to be repaid, and how. If the retailer stays in business, the court may allow it to continue to honor its cards, but even then consumers may not get the full value.