Following the Dec. 8 publication by the American Bankruptcy Institute (“ABI”) Commission to Study the Reform of Chapter 11 of a report (the “Report”) recommending changes to Chapter 11 of the Bankruptcy Code (“Code”),[1] we continue to analyze the proposals contained in the ABI’s 400-page Report. One proposal we wanted to immediately highlight would, if adopted, significantly increase the risk profile for secured lenders.
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).
Appellate courts continue to agree on the vitality and breadth of the safe harbor defense contained in Bankruptcy Code ("Code") § 546(e) (insulating from the trustee's fraudulent transfer or preference attack "settlement payment" or "margin payment" on a "securities contract," "commodity contract" or "forward contract" except when the debtor's payment is made with "actual intent to hinder, delay, or defraud" creditors). In re Quebecor World (USA) Inc., 2013 WL2460726, *1 (2d Cir.
The U.S. Court of Appeals for the Second Circuit recently dismissed a corporate debtor’s attempt to subordinate its former corporate parent’s contract damage claim on the ground that it was a securities fraud claim. CIT Group Inc. v. Tyco Int’l., Inc. (In re CIT Group Inc.), 2012 WL 3854887 (2d Cir. Sept. 6, 2012), affirming 460 B.R. 633 (Bankr. S.D.N.Y. 2011).
The U.S. Court of Appeals for the Fifth Circuit, on Aug. 16, 2011, affirmed the lower court’s decision authorizing reimbursement of expenses to qualified bidders for a reorganization debtor’s assets. In re Asarco, LLC, 2011 BL 213002 (5th Cir. Aug. 16, 2011). In the court’s view, the debtor provided “a compelling and sound business justification for the reimbursement authority.” Id. at *12.
Facts
The Bankruptcy Court for the Southern District of New York recently considered the enforceability of claims for "make-whole" amounts and damages for breach of a "no-call" provision. In re Chemtura Corp., No. 09-11233 (Bankr. S.D.N.Y. Oct. 21, 2010) ("Chemtura"). These provisions are generally enforceable outside of bankruptcy, but enforceability in the context of a bankruptcy case is still unclear. In Chemtura, the court did not actually rule on enforceability but approved a settlement that allocated value to creditors on account of a make-whole clause and a no-call provision.
The U.S. Court of Appeals for the Tenth Circuit held on Nov. 3, 2009, that a district court had improperly dismissed, on mootness grounds, an appeal from a bankruptcy court’s order confirming a reorganization plan. According to the Tenth Circuit, the appeal was reviewable because reversal of the plan confirmation order (1) would not unduly affect innocent third parties, and (2) would not undo any complex transactions.
The United States Bankruptcy Court for the Southern District of New York overseeing the Lehman Brothers (“LBI“) case under the Securities Investor Protection Act (“SIPA“) entered an order on Nov. 7, 2008 (the “Claims Bar Date Order“) establishing the following deadlines for the filing of claims against LBI:
The U.S. Court of Appeals for the Second Circuit, on July 9, 2007, decisively affirmed a bankruptcy court's dismissal of an equitable subordination complaint filed by a creditors' committee against eight investment fund lenders. Official Committee of Unsecured Creditors of Applied Theory Corporation v. Halifax Fund, L.P., et al. (In re Applied Theory Corporation), ___ F.3d ___, 2007 U.S. App. LEXIS 16180 (2d Cir. July 9, 2007).
Last November, in In re LTL Mgmt. LLC, 1 Bankruptcy Judge Craig Whitley in Charlotte, North Carolina, ordered LTL Management LLC’s Chapter 11 bankruptcy case moved to New Jersey after finding that LTL Management had used the “Texas Two-Step” to manufacture jurisdiction in North Carolina improperly. LTL Management is a subsidiary of Johnson & Johnson (“J&J”) and a defendant in thousands of talc-related tort claim lawsuits.