A Florida bankruptcy court, on Oct. 13, 2009, issued a 182-page decision after a 13-day trial, among other things, avoiding on fraudulent transfer grounds (a) secured subsidiary guarantees of $500 million and (b) $420 million pre-bankruptcy payments. In re Tousa, Inc., et al., Case No. 08-10928; Adv. P. 08-1435 (S.D. Fla. Oct. 13, 2009). The decision is on appeal to the district court.  

Relevance  

In a recent decision, the Bankruptcy Court for the District of Delaware allowed the collateral agent for senior lenders to credit bid for the debtors’ assets even though all of the senior lenders had not authorized the bid. One of the senior lenders had objected to the group’s acquisition of the debtors’ assets by the credit bid. In re GWLS Holdings, Inc., 2009 WL 453110 (Bankr. D. Del. Feb. 23, 2009) (Walsh, J.).

The U.S. Court of Appeals for the Fifth Circuit held on March 25, 2009, that a bankruptcy court had improperly surcharged property in the hands of a credit bidding asset buyer with the expenses of the judicial sale. In re Skuna River Lumber, LLC, __F.3d ___, 2009 U.S. App. LEXIS 6175 (5th Cir. 3/25/09). Explaining that the “bankruptcy court had no jurisdiction to take such action,” the Fifth Circuit also vacated the district court’s improper ruling that the bankruptcy judge could enter a personal judgment against the asset buyer. Id., at *9.  

Facts

The Ninth Circuit held on July 3, 2008, that an oversecured creditor’s claim for payment was entitled to a “presumption in favor of the loan agreement’s default rate (an additional 2% interest), subject only to reduction based upon any equities involved.” General Elec. Capt’l Corp. v. Future Media Productions, Inc., 2008 WL2610459, *2 (9th Cir. 7/3/08). Reversing the lower courts, the Court of Appeals held that the bankruptcy court had improperly applied a questionable Ninth Circuit precedent when denying the lender a default rate of interest. Id., at *4.

The U.S. Court of Appeals for the Fifth Circuit reversed a bankruptcy court’s equitable subordination order on June 20, 2008. Wooley v. Faulkner (In re SI Restructuring, Inc.), ____ F.3d __, 2008 WL2469406 (5th Cir. 2008). According to the court, subordination of the insiders’ secured claims was “inappropriate” because the bankruptcy trustee had failed to show that the defendant insiders’ “loans to the debtor harmed either the debtor or the general creditors.” Id., at *1. The court also rejected the trustee’s “deepening insolvency” argument on the facts and as a matter of law.

The United States Bankruptcy Court for the Southern District of New York recently awarded an oversecured lender post-petition interest on the full amount of its secured claim at the default rate set forth in the lender’s contract (19%) plus compound (PIK) interest up to the aggregate rate of 25% (the maximum rate allowable under New York State usury laws). In re Urban Communicators PCS Limited Partnership, et al., 2007 Bankr. LEXIS 4062 (Bankr. S.D.N.Y. 12/11/07) (Gerber, B.J.).

The Court of Appeals for the First Circuit recently held that an oversecured lender holds at least an unsecured claim for contractual prepayment penalties against a solvent debtor. UPS Capital Business Credit v. Gencarelli (In re Gencarelli), 2007 BL 91656 (1st Cir., Aug. 30, 2007). As the court explained, "[t]his is a difficult question that has significant ramifications for the commercial lending industry." Id. at 16.

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).

A purported conditional sale agreement “created a security interest rather than a lease,” held the U.S. Court of Appeals for the Fifth Circuit on Aug. 7, 2018. In re Pioneer Health Services Inc., 2018 WL 3747537, *3 (5th Cir. Aug. 7, 2018). Affirming the lower courts’ finding “that the relevant agreements were not ‘true leases,’” the court rejected a bank’s “motion to compel payment under [its] contract as an unexpired lease or an administrative expense.” Id., at *1. The economic substance, not the form of the transaction, was decisive.

A Chapter 11 debtor’s financial advisers were entitled to a “Success Fee” based on a percentage of a $50-million “debt-to-equity conversion,” held a split U.S. Court of Appeals for the Fifth Circuit on May 4, 2016. In re Valence Technology, Inc., 2016 WL 2587109, *1 (5th Cir. May 4, 2016) (2-1). Key to the opinion was the parties’ concession that the “debt-to-equity conversion qualified as a Private Placement under [their] engagement agreements.” Id., at n.1.