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    District Court adopts subjective good faith defense for fraudulent transfer claims in SIPA case
    2014-05-21

    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).

    Filed under:
    USA, New York, Capital Markets, Insolvency & Restructuring, Litigation, White Collar Crime, Schulte Roth & Zabel LLP, Good faith, United States bankruptcy court, US District Court for the Southern District of New York
    Authors:
    Michael L. Cook , Harry S. Davis , Michael Court
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP
    Beware the ‘Meridian Sunrise’ — District Court rules investment funds are not ‘financial institutions’ under loan transfer restrictions
    2014-05-02

    The U.S. District Court for the Western District of Washington recently construed the terms of a customary loan agreement to preclude certain hedge funds viewed as “acquir[ing] distressed debt and engag[ing] in predatory lending” from voting on a debtor’s plan of reorganization. Meridian Sunrise Village, LLC v. NB Distressed Debt Investment Fund Ltd. (In re Meridian Sunrise Village, LLC), 2014 WL 909219 (W.D. Wash. Mar. 7, 2014).

    Filed under:
    USA, Washington, Banking, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Distressed securities
    Authors:
    David J. Karp , Neil S. Begley
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP
    Seventh Circuit reads bankruptcy safe harbor broadly to insulate preferential settlement payment to commodity broker
    2014-04-03

    The United States Court of Appeals for the Seventh Circuit, on March 19, 2014, held that a corrupt debtor’s pre-bankruptcy cash transfer to a commodity broker was a “settlement payment” made “in connection with a securities contract,” thus falling “within [Bankruptcy Code] §546(e)’s safe harbor” and insulating the transfer from the trustee’s preference claim. Grede v. FCStone, LLC (In re Sentinel Management Group, Inc.), 2014 WL 1041736, *7 (7th Cir. Mar. 19, 2014).

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Bankruptcy, Debtor, Security (finance), Commodity broker, Hedge funds, Mutual fund, Seventh Circuit
    Authors:
    Michael L. Cook
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP
    Fourth Circuit affirms lender’s good faith in fraudulent transfer case
    2014-03-06

    The U.S. Court of Appeals for the Fourth Circuit, on Feb. 21, 2014, affirmed the dismissal of a bankruptcy trustee’s fraudulent transfer complaint against a “warehouse” lender who had been paid by a distressed home mortgage originator several months prior to the originator’s bankruptcy. Gold v. First Tennessee Bank, N.A., 2014 U.S. App. LEXIS 3279 (4th Cir. Feb. 21, 2014) (2-1). Affirming the lower courts, the Fourth Circuit held that “the bank accepted the payments” from its borrower “in good faith.” Id., at *2.

    Filed under:
    USA, Banking, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Debtor, Fraud, Mortgage loan, Good faith, Fourth Circuit
    Authors:
    Michael L. Cook
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP
    Swaps update: ‘triangular setoff’ held unenforceable in bankruptcy cases
    2014-02-13

    Setoff provisions are commonly found in a variety of trading related agreements between hedge funds and their dealer counterparties. Last November, Judge Christopher Sontchi of the United States Bankruptcy Court for the District of Delaware held that “triangular setoff” is not enforceable in the context of a bankruptcy case.[1] “Triangular setoff” is a contractual right of setoff that permits one party (“Party One”) to net and set off contractual claims of Party One and its affiliated entities  against another party (“Party Two”).

    Filed under:
    USA, Delaware, Derivatives, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Hedge funds, Barclays
    Authors:
    Craig Stein , Lawrence V. Gelber , Kristin Boggiano
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP
    Fifth Circuit holds mere acceleration does not trigger prepayment premium
    2014-02-06

    The U.S. Court of Appeals for the Fifth Circuit held on Jan. 27, 2014 that a lender’s acceleration due to a borrower’s payment default did not trigger a prepayment premium. In re Denver Merchandise Mart, Inc., 2014 WL 291920, *1 (5th Cir. Jan. 27, 2014) (“Denver Merchandise”). Affirming the lower courts’ application of state law, the court held that “the plain language of the contract does not require the payment of the Prepayment Consideration in the event of mere acceleration.” Id. at *5.  

    Relevance

    Filed under:
    USA, Banking, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Debtor, Interest, Liquidated damages, Default (finance), Fifth Circuit
    Authors:
    Michael L. Cook
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP
    Fisker part II: Delaware District Court refuses to hear appeal of controversial Bankruptcy Court decision capping credit bid
    2014-02-12

    We recently wrote about the highly controversial decision of the Delaware Bankruptcy Court in In re Fisker Automotive capping a secured creditor’s right to credit bid its $168 million claim at $25 million.[1] The secured creditor immediately appealed to the District Court.[2] As a procedural matter, the secured creditor had an absolute right to have its appeal heard only if the Bankruptcy Court’s ruling was considered a “final order.” If it was not a “final order,” then the District Court had discretion on whether to hear the merits of the appeal. On Feb.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Secured creditor, United States bankruptcy court
    Authors:
    Adam C. Harris , David M. Hillman , James T. Bentley
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP
    Credit bid buyers beware: Delaware bankruptcy court caps credit bid
    2014-01-24

    On Jan. 10, 2014, the United States Bankruptcy Court for the District of Delaware (the “Court”) in In re Fisker Automotive Holdings, Inc., et al., capped a secured creditor’s right to credit bid its $168 million claim at only $25 million (the amount it paid to purchase the claim). The decision is on appeal. While the Court stated that its decision is non-precedential, it serves as a cautionary tale for secured lenders who also are potential acquirers of a debtor’s assets in bankruptcy sales.

    Facts

    Loan to Fisker

    Filed under:
    USA, Delaware, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Secured creditor, United States bankruptcy court, US District Court for District of Delaware
    Authors:
    Adam C. Harris , David M. Hillman , James T. Bentley
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP
    New York bankruptcy court awards billions in damages arising from corporate spin-off avoided as fraudulent transfer
    2013-12-20

    A New York bankruptcy court, on Dec. 12, 2013, issued a 166-page decision after a 34-day trial, concluding that the spin-off of a highly profitable energy business constituted a fraudulent transfer intended to shield the business from massive environmental liabilities, and awarding damages of up to approximately $14.5 billion.[1]Tronox Inc. et al. v. Kerr McGee et al. (In re Tronox et al.) (Bankruptcy S.D.N.Y. Dec. 12, 2013) (J.

    Filed under:
    USA, New York, Insolvency & Restructuring, Litigation, White Collar Crime, Schulte Roth & Zabel LLP, Public company, United States bankruptcy court
    Authors:
    David M. Hillman , Michael L. Cook
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP
    Second Circuit examines make-whole premium: plain language controls
    2013-09-20

    On Sept. 12, 2013, the United States Court of Appeals for the Second Circuit affirmed the bankruptcy court’s decision to deny payment of a make-whole premium (the “Make-Whole Amount”) to bondholders under three separate indentures (the “Indentures”) based on the plain language of those agreements. U.S. Bank Trust Nat’l Ass’n v. AMR Corp. et al. (In re AMR Corp.), __ F.3d __, 2013 WL 4840474 (2d Cir. Sept. 12, 2013) (“In re AMR Corp. II”).

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Schulte Roth & Zabel LLP, Second Circuit, United States bankruptcy court
    Authors:
    David M. Hillman , Karen S. Park
    Location:
    USA
    Firm:
    Schulte Roth & Zabel LLP

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