We all know that many large commercial real estate loan transactions include “bad boy” guaranties from the principals of the borrower which spring into action upon the occurrence of certain events, like the filing of a bankruptcy petition. Some borrowers do not take these guaranties seriously since they think that they are in violation of public policy and/or constitute an unenforceable penalty.

Everest Reinsurance Company intervened in the liquidation proceedings of Midland Insurance Company, and moved to have the anti-suit injunction vacated, in order to allow it to participate in the claims settlement process, and to interpose defenses. The trial court denied the motion, and Everest appealed. The appellate court affirmed, finding Everest’s defenses were premature, as none of the relevant claims had yet been approved, and because adequate procedures existed for it to interpose defenses later in the process.

In re Tronox Incorporated, et al., 2011 WL 1815149 (Bankr. S.D.N.Y. May 11, 2011)

CASE SNAPSHOT

On Tuesday morning, the Federal Deposit Insurance Corporation (“FDIC”) Board unanimously approved two rules regarding resolution planning: one rule for large bank holding companies and nonbank financial companies supervised by the Federal Reserve Board of Governors (“FRB”),1 and the other rule for large banks.2

Last week’s Chapter 11 filing by NewPage Corporation, a company with assets and liabilities in the billions of dollars, stands as a relative rarity in the current restructuring environment.

The U.S. Court of Appeals for the Seventh Circuit recently affirmed a bankruptcy court’s decision refusing to confirm debtors’ reorganization plan that included auction procedures that forbade secured creditors from “credit bidding” for the assets. Inre River Road Hotel Partners, LLC, No. 10-3597, 2011 WL 2547615 (7th Cir. June 28, 2011). In that case, the debtors (owners of various hotel properties) proposed a plan of reorganization that included auctioning certain properties encumbered by security interests.

The United States Bankruptcy Court for the District of Delaware, applying federal law, has held that certain lawsuits brought by a bankruptcy trustee were related claims, even though they alleged unique causes of action, because they were based upon the same course of conduct.  The court also found that the trustee was pursuing claims both on behalf of the policyholder-debtor and its subsidiaries, and therefore the application of the insured versus insured exclusion was “unclear.”  Nonetheless, the court found that the individual insureds were entitled to 100% of their defense cos

On September 13th, the FDIC voted to approve a final rule to be issued jointly with the Federal Reserve Board that would implement Section 165(d) of the Dodd-Frank Act. That provision requires bank holding companies with assets of $50 billion or more and companies designated as systemic by the Financial Stability Oversight Council to report periodically to the FDIC and the Federal Reserve the company's plan for its rapid and orderly resolution in the event of material financial distress or failure. The Federal Reserve will consider whether to adopt the rule shortly.

The scenario has become all too familiar in recent years: a borrower defaults on a loan and, when the lender pursues the loan collateral through foreclosure or other proceedings, the borrower files for bankruptcy protection. More often than not, when the lender appears in bankruptcy court to pursue its interest in the collateral, the borrower counterattacks with a host of state law lender liability claims.

The Supreme Court of Delaware recently held that creditors of insolvent Delaware limited liability companies (LLCs) lack standing to bring derivative suits on behalf of the LLCs.

In March 2010, CML V brought both derivative and direct claims against the present and former managers of JetDirect Aviation Holdings LLC in the Court of Chancery after JetDirect defaulted on its loan obligations to CML. The Vice Chancellor dismissed all the claims, finding that, as a creditor, CML lacked standing to bring derivative claims on behalf of JetDirect, and CML appealed.