The U.S. Court of Appeals for the Eleventh Circuit has affirmed a lower court ruling that lease termination fees can be considered preferential transfers under the Bankruptcy Code, subject to avoidance. The court’s holding reinforces concerns over whether landlords can structure lease terminations in a manner that protects them from preference recovery.
The U.S. Supreme Court has issued a long-awaited decision that many practitioners had hoped would provide insight into the permissible breadth of third-party releases and injunctions often contained in confirmed chapter 11 plans. The high court, however, narrowly resolved the issue presented in Travelers Indem. Co. v. Bailey, 129 S.Ct. 2195 (2009), and left open that ultimate question.
United States Supreme Court
Washington, D.C.
November 3, 2009
The United States Court of Appeals for the First Circuit upheld a bankruptcy court’s ruling that, where subordination agreements lacked explicit provisions addressing the payment of post-petition interest on senior unsecured debt, the agreements were ambiguous, and an inquiry into the parties’ intent was required. After probing the facts and analyzing New York law, the bankruptcy court determined that the contracting parties did not intend to subordinate the junior unsecured debt to post-petition interest on the senior debt.
Background
The Bottom Line:
The ability to sell an asset in bankruptcy free and clear of liens and any other competing “interest” is a well-recognized tool available to a trustee or chapter 11 debtor in possession (“DIP”). Whether the category of “interests” encompassed by that power extends to potential successor liability claims, however, has been the subject of considerable debate in the courts. A New York bankruptcy court recently addressed this controversial issue in Olson v. Frederico (In re Grumman Olson Indus., Inc.), 445 B.R. 243(Bankr. S.D.N.Y. 2011).
United States Supreme Court
Washington, D.C.
November 3, 2009
A few weeks ago in In re S. White Transportation, the U.S. Court of Appeals for the Fifth Circuit permitted a secured creditor that had indisputably received notice of the debtor’s chapter 11 case, but took no steps to protect its interests until after the confirmation of the debtor’s plan, to continue to assert a lien against the debtor’s property post-confirmation.