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).
Section 510(b) of the Bankruptcy Code provides a mechanism designed to preserve the creditor/shareholder risk allocation paradigm by categorically subordinating most types of claims asserted against a debtor by equity holders in respect of their equity holdings. However, courts do not always agree on the scope of this provision in undertaking to implement its underlying policy objectives. A New York bankruptcy court recently addressed this issue in In re Lehman Brothers Inc., 2014 BL 21201 (Bankr. S.D.N.Y. Jan. 27, 2014).
Overnight Income Doesn't Float ERISA Plan's Boat.
On March 19, 2014, the U.S. Court of Appeals for the Seventh Circuit decided Grede v. FCStone, LLC, Nos. 13-1232, 13-1278 (7th Cir. Mar. 19, 2014), an opinion that reinforces the importance of the portability of investment accounts carrying commodity customer funds. The Seventh Circuit held that commodity futures customer funds must be protected in an insolvency situation, and that the release of customer funds to meet margin obligations should be upheld at all costs.
Many bank holding companies (BHCs) are beginning to face tough choices as the five-year interest deferral period on their trust preferred securities (TruPS) is coming to an end. Consider the following: on Feb. 10, 2014, First Mariner Bancorp, immediately following the end of its five-year interest deferral period on $52 million of TruPS, filed a voluntary Chapter 11 petition and announced its plans to sell its wholly owned subsidiary, 1st Mariner Bank, in a court-supervised Section 363 sale.
The United States Bankruptcy Court for the Southern District of New York (the “Court”) in Weisfelner v. Fund 1 (In Re Lyondell Chemical Co.), 2014 WL 118036 (Bankr. S.D.N.Y. Jan. 14, 2014) recently held that the safe harbor provision of 11 U.S.C.
Section 546(e) of the Bankruptcy Code provides a “safe harbor” for certain transfers involving the purchase and sale of securities and protects those transfers from avoidance in bankruptcy proceedings as preferences or constructively fraudulent conveyances. Specifically, section 546(e) insulates transfers that are “settlement payments” used in the securities trade, as well as other transfers made to or from certain parties, including financial institutions, financial participants and stockbrokers, in connection with a securities contract. Section 741(8) of the Bankruptcy Code de
InGrayson Consulting, Inc. v. Wachovia Securities, LLC (In re Derivium Capital LLC), 716 F.3d 355 (4th Cir. 2013), the U.S. Court of Appeals for the Fourth Circuit examined whether certain securities transferred and payments made during the course of a Ponzi scheme could be avoided as fraudulent transfers under sections 544 and 548 of the Bankruptcy Code. The court upheld a judgment denying avoidance of pre-bankruptcy transfers of securities because the debtor did not have an “interest” in the securities at the time of the transfers.
On October 30th, the Commodity Futures Trading Commission ("CFTC") adopted new final rules imposing requirements on swap dealers and major swap participants with respect to the treatment of collateral posted by their counterparties to margin, guarantee, or secure uncleared swaps.
Section 546(e) of the Bankruptcy Code offers a strong defense for holders of bonds, notes and other securities to preference and fraudulent transfer actions brought in bankruptcy proceedings. Essentially, any payment made to settle or complete a securities transaction, including repurchases and redemptions of bonds, notes and debentures, is protected from avoidance under the Bankruptcy Code. For many years, however, this powerful defense was rarely used. When the defense was raised, it was usually in the context of protecting payments made in leveraged buy-outs.