Last month, in a significant ruling in the General Growth Properties, Inc. (“GGP”) bankruptcy case, the United States Bankruptcy Court for the Southern District of New York denied motions to dismiss, as bad faith filings, the bankruptcy cases of 20 purported bankruptcyremote special purpose entity (“SPE”) subsidiary debtors.1

On August 11, 2009, in one of the most significant rulings to date in the GGP bankruptcy proceeding, the Bankruptcy Court denied motions to dismiss as bad faith filings the bankruptcy cases of 20 GGP property-level subsidiaries. In denying the motions, the court stated that the fundamental creditor protections negotiated in the special purpose entity structures at the property level are in place and will remain in place during the pendency of the chapter 11 cases.

Metropolitan Insurance Company has joined ING Clarion Capital Loan Services, Inc., Wells Fargo Bank, N.A., and FRM Funding Company, Inc in requesting the Bankruptcy Court to dismiss as bad faith filings the bankruptcy cases of twenty-one property level CMBS borrower subsidiaries of General Growth Properties, Inc. ING filed the first motion on May 4th with respect to eight debtors, and a hearing was set for May 27th. That hearing was subsequently adjourned to June 17th. Creditors having similar motions to be heard on June 17th were required to file their motions to dismiss by May 29th .

Our May 11th memo entitled “General Growth Properties Bankruptcy Court Defers Final Ruling on Cash Collateral, Cash Management and DIP Financing Issues” concluded that the ultimate impact of the bankruptcy filings of General Growth Properties, Inc. and its affiliates would depend in large part on how the cash collateral and DIP Loan issues were resolved. On May 13th, Judge Allan L. Gropper, the U.S. Bankruptcy Judge before whom these bankruptcies are pending, entered final orders on the pending cash collateral, cash management and debtor-in-possession financing motions.

Following several weeks of speculation about how pending cash collateral, cash management, and debtor-in-possession financing motions might affect basic principles of structured finance, the bankruptcy court deferred a final ruling on the motions and extended the interim cash collateral order. In so doing, Judge Allan L. Gropper of the United States Bankruptcy Court for the Southern District of New York suggested that CMBS lenders organize themselves so that common issues can be identified and resolution expedited.

Introduction

Earlier this year, the United States Bankruptcy Court for the District of Delaware ruled that a nondebtor cannot effect a “triangular” setoff of the amounts owed between it and three affiliated debtors, even if the parties had entered into pre-petition contracts that expressly contemplated multiparty setoff.1 In reaching its decision, the Court relied principally on the plain language of section 553(a) of the United States Bankruptcy Code, which limits setoff to “mutual” obligations — i.e., direct obligations between a single obligor and obligee.

Historically, the United Kingdom has not had a specialised bankruptcy regime for dealing with the failures of financial institutions. Rather, these were handled under the same rules that applied to ordinary corporations.

On April 20, 2011, the IRS issued proposed regulations under Treas. Reg. §1.267(f)-1(c) (the Proposed Regulations), which will become effective after they are adopted as final regulations. The Proposed Regulations modify the current deferred loss rules to allow the acceleration of a deferred loss in certain circumstances that routinely arise in international restructurings of U.S. companies. Accordingly, corporations in a controlled group that are considering a sale to another member of the controlled group should evaluate the consequences under the Proposed Regulations.

Why has the Financial Support Direction (FSD) been issued?