The strategic importance of classifying claims and interests under a chapter 11 plan is sometimes an invitation for creative machinations designed to muster adequate support for confirmation of the plan. Although the Bankruptcy Code unequivocally states that only “substantially similar” claims or interests can be classified together, it neither defines “substantial similarity” nor requires that all claims or interests fitting the description be classified together.

The ability to sell assets during the course of a chapter 11 case without incurring transfer taxes customarily levied on such transactions outside of bankruptcy often figures prominently in a potential debtor’s strategic bankruptcy planning. However, the circumstances under which a sale and related transactions (e.g., recording of mortgages) qualify for the tax exemption have been a focal point of dispute for many courts, including no less than four circuit courts of appeal.

The U.S. Court of Appeals for the Third Circuit has issued a recent decision that is instructive as to what creditors should not do when a customer is having a hard time paying its bills.

In In re Calpine Corporation, 2007 WL 685595 (Bankr. S.D.N.Y. 2007), the Bankruptcy Court for the Southern District of New York considered the issue of whether secured creditors whose debt was being paid prior to its original maturity date were entitled to a prepayment premium.

While derivations of intercreditor agreements continue to enhance the rights of the senior secured party, whether the many provisions provided for are enforceable in bankruptcy remains a burning question. Recently, the Bankruptcy Court for the Northern District of Georgia in In re Aerosol Packaging, LLC, 2006 WL 4030176 (Bankr. N.D.Ga. 2006) helped bring clarity to one of the most important of these issues: is the right of a senior creditor to vote the claim of a junior creditor on whether to accept or reject a plan of reorganization enforceable in bankruptcy?

Debtors, creditors, purchasers and lenders continue to carefully monitor employee incentive programs after the 2005 changes to Bankruptcy Code brought on by BAPCA. Although many feared the changes to section 503(c) would eliminate an important tool for creating incentives for employees, courts have consistently approved reasonable and well-thought-out incentive programs.

Factual Background

In Motorola, Inc. v. Official Committee of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d 452 (2d Cir. 2007), the Official Committee of Unsecured Creditors (the “Committee”) and the debtors’ lenders sought approval of a settlement prior to confirmation of a plan of reorganization. While the Court concluded that many aspects of the settlement might otherwise be approved, it found that a provision that distributed funds in violation of the absolute priority rule lacked sufficient justification.

A federal district court in New York has overturned a bankruptcy court decision that some say had threatened to disrupt the secondary market in claims against companies in bankruptcy. See Enron Corp. v. Springfield Associates, L.L.C., No. 01-16034 (S.D.N.Y., Aug. 27, 2007).

The aggregate value of private-equity acquisitions worldwide in 2006 exceeded $660 billion. If this number seems mind-boggling, consider that this record-breaking volume of transactions appears well on the way to being eclipsed in 2007. Even with corporate financing for leveraged buyouts harder to come by as a consequence of the sub-prime mortgage fallout, there is, by some estimates, $300 billion sitting globally in private-equity funds. Already on tap or completed in 2007: a $32 billion takeover of energy company TXU Corp.

In a significant Delaware law decision regarding creditors’ ability to sue corporate fiduciaries, the Delaware Supreme Court recently addressed the issue of whether a corporate director owes fiduciary duties to the creditors of a company that is insolvent or in the “zone of insolvency.” In North American Catholic Educ. Programming Found., Inc. v. Gheewalla, the court concluded that directors of a solvent Delaware corporation that is operating in the zone of insolvency owe their fiduciary duties to the corporation and its shareholders, and not creditors.