Introduction

On August 11, 2009, in one of the most significant rulings to date in the GGP bankruptcy proceeding, the Bankruptcy Court denied motions to dismiss as bad faith filings the bankruptcy cases of 20 GGP property-level subsidiaries. In denying the motions, the court stated that the fundamental creditor protections negotiated in the special purpose entity structures at the property level are in place and will remain in place during the pendency of the chapter 11 cases.

On June 17, 2009, the Seventh Circuit examined the tax practitioner privilege in Valero Energy Corporation v. U.S., 103 AFTR 2d 2009-2683. Valero, a large oil refiner, expanded its operations in 2001 by acquiring Ultra Diamond Shamrock Corporation (“UDS”). Prior to the acquisition, Ernst & Young developed a restructuring and refinancing plan for UDS’s Canadian subsidiaries. Valero asked its tax advisors, Arthur Anderson, to review the plan and provide additional tax advice.

Opinion Serves to Remind Lenders That “Bankruptcy Remote” Does Not Mean “Bankruptcy Proof”

Judge Allan L. Gropper of the Bankruptcy Court for the Southern District of New York issued a much-anticipated order on August 11, 2009, in the challenge to the bankruptcy filings by certain special-purpose-entity (“SPE”) affiliates of General Growth Properties, Inc. (“GGP”).

On August 11, 2009, the US Bankruptcy Court for the Southern District of New York denied five motions to dismiss bankruptcy cases filed by certain bankruptcy remote, special purpose subsidiaries (SPEs) of General Growth Properties, Inc. (GGP). The motions were filed by or on behalf of secured lenders to the SPEs (Movants) who argued that the bankruptcy filings were inconsistent with the bankruptcy remote structures that they had negotiated with GGP.

In a decision made on August 11, 2009, the U.S. Bankruptcy Court for the Southern District of New York allowed solvent, special purpose entity subsidiaries of a bankrupt parent company, General Growth Properties, Inc., to maintain their Chapter 11 bankruptcy cases, raising several important issues related to the use of special purpose entities structured to be "bankruptcy-remote."

GGP Business Model and 2009 Bankruptcy Filings

Last month, in a significant ruling in the General Growth Properties, Inc. (“GGP”) bankruptcy case, the United States Bankruptcy Court for the Southern District of New York denied motions to dismiss, as bad faith filings, the bankruptcy cases of 20 purported bankruptcyremote special purpose entity (“SPE”) subsidiary debtors.1

For the fashion industry, one of the must-have, but hard to come by, items this season is a favorable refinancing deal. The recent volatility in the fashion market has reflected not just the ever-changing tastes of the cognoscenti, but also the rapidly shifting economic landscape confronting designers and retailers. The fashion industry has suffered acutely in the global financial crisis as consumers curb their spending, particularly in the luxury goods market. In fact, analysts have estimated that 12% of fashion companies will not survive the recession.  

The U.S. Court of Appeals for the Ninth Circuit has held that there is a federal common law of receivership in the context of real property security interest, joining the Eleventh Circuit. Can. Life Assurance Co. v. LaPeter, 557 F.3d 1103 (9th Cir. 2009).

A fundamental component in the commercial mortgage-backed securities ("CMBS") market is the lender's reliance that the loan is made to a "bankruptcy remote" special purpose entity ("SPE"). The loan documents and operating agreements relating to an SPE typically require that the SPE maintain separate existence and contain restrictions that limit the SPE's debt and ensure separateness.