On September 26, 2013, Judge Steven W. Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan denied the Official Committee of Retirees’ (the “Committee”) motion to stay all eligibility proceedings pending its motion to withdraw the reference. In re City of Detroit, Michigan, Case No. 13-53846, ECF No. 1039 (Bankr. E.D. Mich. Sept.
In the last two weeks, the Honorable Steven W. Rhodes of the Bankruptcy Court for the Eastern District of Michigan held two important in hearings in the City of Detroit's chapter 9 case, the largest in history.
On the afternoon of July 18, 2013, the City of Detroit filed its highly anticipated petition for relief under Chapter 9 of the Bankruptcy Code in the Bankruptcy Court for the Eastern District of Michigan. This marks the largest municipal bankruptcy filing in United States history.1As a result of the Chapter 9 filing, all actions by creditors to collect prepetition claims against the City are enjoined through the imposition of an automatic stay, except for the application of special revenues pledged to indebtedness.
A. Background to Chapter 9 Filing
The auto parts supply industry has been beset by financial problems for several decades. Original equipment manufacturers ("OEMs") typically have the right to immediately seize their tooling, which the supplier holds in order to make parts. This allows OEMs to quickly move the tooling to another supplier and avoid an assembly line shutdown if the supplier fails. The right to immediately reclaim tooling, however, may be restricted if the supplier files for bankruptcy.
The United States Bankruptcy Court for the Eastern District of Michigan has held that postpetition financing did not receive automatic status as an administrative expense claim under section 346(b) of the Bankruptcy Code. Therefore, the creditor could not object to confirmation of the Debtor’s plan on the grounds that all administrative expense claims would not be paid in full. In re Mayco Plastics, Inc., 379 B.R. 691 (Bankr. E.D. Mich. 2008).
The Bottom Line
In CMH Liquidating Trust v. National Union Fire Insurance Company of Pittsburgh, PA, Case No. 16-cv-14434 (E.D. Mich. 2019) (“CMH”), the District Court for the Eastern District of Michigan held that an insurance policy that was renewed post-petition was still an executory contract, and thus, a provision denying coverage for acts leading to bankruptcy was a prohibited ipso facto clause.
What Happened?
On December 5, 2013, the U.S. Bankruptcy Court for the Eastern District of Michigan released its 143 page decision upholding the City of Detroit’s eligibility to be a debtor under chapter 9 of the United States Bankruptcy Code. In re City of Detroit, Michigan, Case No. 13-53846 (Bankr. E.D. Mich. Dec.
On September 26, 2013, Judge Steven W. Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan denied the Official Committee of Retirees’ (the “Committee”) motion to stay all eligibility proceedings pending its motion to withdraw the reference. In re City of Detroit, Michigan, Case No. 13-53846, ECF No. 1039 (Bankr. E.D. Mich. Sept.
On the afternoon of July 18, 2013, the City of Detroit filed its highly anticipated petition for relief under Chapter 9 of the Bankruptcy Code in the Bankruptcy Court for the Eastern District of Michigan. This marks the largest municipal bankruptcy filing in United States history.1As a result of the Chapter 9 filing, all actions by creditors to collect prepetition claims against the City are enjoined through the imposition of an automatic stay, except for the application of special revenues pledged to indebtedness.