A majority of today’s large Chapter 11 cases are structured as quick Section 363 sales of all the debtor’s assets followed by confirmation of a plan of liquidation, dismissal of the case, or a conversion to a Chapter 7. The purchaser in the sale is often one of the debtor’s prepetition secured or undersecured lenders, which may also act as the debtor-inpossession (DIP) lender and purchase the debtor’s assets through a credit bid, with no cash consideration.

In re Altadena Lincoln Crossing LLC, 2018 Westlaw 3244502 (Bankr. C.D. Cal.), a California bankruptcy court held that a default interest rate provision was an unenforceable penalty under applicable California law because, among other things, the applicable loan agreements did not contain an estimate of the probable costs to the lender resulting from the debtor’s default.

Background

Section 363(k) of the Bankruptcy Code grants secured creditors the right to credit bid up to the full amount of their claim as a form of currency to bid to purchase assets securing their claim from a debtor in connection with a stand-alone sale of assets under section 363(b). In a recent opinion from the Bankruptcy Court for the District of Delaware, In re Aerogroup International, Inc., Judge Kevin J.

The Ninth Circuit reversed and remanded an Oregon bankruptcy court’s order designating recently acquired claims of a secured creditor for bad faith, holding that a bad faith finding requires “something more.” Specifically, the Court found that a bankruptcy court may not designate claims for bad faith simply because (1) a creditor offers to purchase only a subset of available claims in order to block a plan of reorganization, and/or (2) blocking the plan will adversely impact the remaining creditors.Pacific Western Bank, et al. v.

On December 11, 2017, in a case entitled In re Iliceto, 1 the Eleventh Circuit Court of Appeals affirmed the district court's decision,2 which held that Nationstar Mortgage, LLC ("Nationstar" or the "Creditor") received notice reasonably calculated under all the circumstances to apprise it that its status as a secured creditor was being challenged by Robert Iliceto ("Iliceto" or the "Debtor") in his Chapter 13 bankruptcy proceeding,3 even though the Debtor did not notify Nationstar that he was objecting to the validity of its mortgage.

Certain amendments to the Federal Rules of Bankruptcy Procedure, which became effective on December 1, 2017, impose affirmative obligations on secured creditors to protect the right to distribution in a bankruptcy case. Specifically, Rule 3002(a) now requires a secured creditor to file a proof of claim in order to gain allowance for a secured claim.

The Second Circuit recently issued its decision on an appeal to the Momentive Performance Materials Inc. (“MPM”) bankruptcy case. Amongst other issues, the Court found that when determining the appropriate interest rate in a Chapter 11 cramdown, courts should consider market factors rather than strictly apply the Till formula. The Court’s decision will benefit secured creditors when a market rate is ascertainable, as they will no longer have to accept below-market take-back debt.

In April 2017, the Supreme Court submitted to Congress proposed revisions to the Federal Rules of Appellate Procedure (“FRAP”), Federal Rules of Bankruptcy Procedure (“FRBP”), Federal Rules of Civil Procedure (“FRCP”), and Federal Rules of Evidence (“FRE”). The proposed revisions will go into effect on December 1, 2017, unless Congress rejects or defers the proposed amendments.

You have been reading for months that the U.S. Supreme Court approved amendments to the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) that go into effect on December 1, 2017. You also may have ignored these changes because they affect Chapter 13 consumer cases and may not impact your commercial bankruptcy practice.

Right?

Creditors need to know of significant changes about to occur to the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"). On December 1, 2017, certain amendments to the Bankruptcy Rules will become effective. This article discusses two of the changes: 1) the period for filing proofs of claim is being shortened, and 2) secured creditors must timely file a claim to receive a distribution.