Yesterday, Senate Republicans circulated a brief summary of the Financial Regulatory Improvement and Taxpayer Protection Act, a Republican substitute to the Restoring American Financial Stability Act of 2010 (S.3217) previously
The Third Circuit recently held that a bankruptcy court may confirm a Chapter 11 plan that includes a sale of assets in which secured creditors are not permitted to “credit bid” for the assets. In re Philadelphia Newspapers, LLC, 599 F.3d 298 (3d Cir. 2010). In that case, the debtors in possession, companies that own and operate the Philadelphia Inquirer and Philadelphia Daily News, moved the bankruptcy court to approve bid procedures for an auction of the debtors’ assets. Id. at 302.
Merger and acquisition transactions frequently have included ongoing obligations of the parties to each other. In a recent decision by the Third Circuit Court of Appeals, a trademark licensee in a 1991 acquisition survived an effort by the bankrupt licensor to overturn the license. (In re: Exide Technologies, U.S. Third Circuit Court of Appeals, No. 08-1872 filed June 2, 2010) The case illustrates that the time in which agreements in a merger and acquisition transaction remain at issue can be longer than would be expected.
Reversing both the bankruptcy court and the district court, the U.S. Court of Appeals for the Third Circuit held that a trademark licensing agreement had been substantially performed and was therefore not subject to rejection under §365(a) of the Bankruptcy Code. In re Exide Technologies, Case No. 08-1872 (3d Cir., June 1, 2010) (Roth, J.) (Ambro, J., concurring).
Chapter 11 of the United States Bankruptcy Code is intended to allow financially stressed debtors to restructure their debt obligations through a plan of reorganization. Typically, a Chapter 11 plan places different types of claims in different classes and, subject to various requirements of the Bankruptcy Code, allows the debtor to pay only portions of the claims (and in certain circumstances not to pay certain claims at all). Moreover, the Bankruptcy Code allows a debtor the flexibility to structure a plan to defer the payment of certain claims.
The question of what happens to an international arbitration when a party files for bankruptcy in the United States is arising with increasing frequency. In the United States, the public policy interests that underlie both bankruptcy and arbitration legislation sometimes clash on critical points. The federal courts have developed competing approaches to addressing these issues. This fractured caselaw introduces uncertainty at the intersection of arbitration and bankruptcy.
US Bankruptcy Code
On July 13, 2010, the U.S. Court of Appeals for the Third Circuit held, in a landmark decision, that a plan sponsor which had the right to unilaterally terminate retiree benefits outside of bankruptcy could not exercise that same right during a bankruptcy proceeding. The case, IUE-CWA v. Visteon Corp. (In re Visteon Corp.), marks the first time that a Circuit Court of Appeals ruled against a bankrupt employer in its attempt to unilaterally terminate non-vested retiree welfare benefits.
As part of the overhaul of bankruptcy laws in 1978, Congress for the first time included the definition of "claim" as part of the Bankruptcy Code. A few years later, in Avellino & Bienes v. M. Frenville Co. (In re M. Frenville Co.), the Third Circuit became the first court of appeals to examine the scope of this new definition in the context of the automatic stay.
"Safe harbors" in the Bankruptcy Code designed to insulate nondebtor parties to financial contracts from the consequences that normally ensue when a counterparty files for bankruptcy have been the focus of a considerable amount of scrutiny as part of evolving developments in the Great Recession. One of the most recent developments concerning this issue in the courts was the subject of a ruling handed down by the New York bankruptcy court presiding over the Lehman Brothers chapter 11 cases. In In re Lehman Bros. Holdings, Inc., Judge James M.