The United States Bankruptcy Court for the District of Delaware on May 30, 2008, issued a memorandum opinion in which it refused to dismiss claims of breach of fiduciary duty against directors and officers of a company who approved the sale of the company’s assets on the eve of its filing for bankruptcy protection. In issuing its opinion inIn re Bridgeport Holdings Inc., the court provided some guidelines for directors and officers, particularly during challenging economic times.

The Fifth Circuit recently issued an opinion addressing an important issue with respect to the preservation of a debtor's causes of action in a Chapter 11 plan of reorganization. The Fifth Circuit held that a reorganized debtor lacked standing to pursue certain common-law claims that were based on the pre-confirmation management of the bankruptcy estate's assets.

Two recent Federal appeals court decisions — one issued by the Fifth, the other by the Second Circuit — illustrate the dangers of careless drafting of bankruptcy and reorganization plans. In the Fifth Circuit decision, a drafting error prevented a company reorganized under Chapter 11 from suing the administrators of its property during its bankruptcy for fraud, breach of fiduciary duty and negligence, thereby potentially depriving its creditors of bankruptcy assets.

The petitioner entities, two New York limited liability companies (the “Petitioners”), filed a petition seeking judicial dissolution and winding up of nine Delaware limited liability companies (the “Respondents”) pursuant to Sections 18-802 and 18-803 of the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101, et seq. (the “LLC Act”), or, in the alternative, appointment of a receiver for the Respondents pursuant to Section 18-805 of the LLC Act.

U.S. v. Henry, Case No. 08-003 (W.D. Va. July 1, 2008)

The Ninth Circuit’s Bankruptcy Appellate Panel (the “BAP”) held on July 18, 2008, that the Bankruptcy Code (“Code”) did not authorize a bankruptcy court’s approving the sale of a debtor’s property free and clear of a junior lien outside the reorganization plan context. In re PW, LLC __ B.R. __, 2008 WL 2840659 (B.A.P. 9th Cir. July 18, 2008). It directed the bankruptcy court to ascertain on remand whether state law permitted a court to compel the junior lienholder to release its lien in exchange for payment of less than the face value of its claim. Id., at *13-*16.

The revisions to Ohio’s exemption law set forth in O.R.C. §2329.66 become effective on September 25, 2008 by Senate Bill 281 that was signed by Governor Strickland on June 27, 2008. The purpose of the changes to Ohio’s exemption law is to increase the exemptions for property that a debtor may hold exempt from execution, garnishment or sale for the satisfaction of a judgment. Ohio’s current exemptions have not been revised since 1979, and the current exemptions do not reflect the costs of living in 2008.

Earlier today (September 15, 2008), Lehman Brothers Holdings Inc. (Holdings), the corporate parent of the fourth largest investment bank in the United States, filed for Chapter 11 protection in the United States Bankruptcy Court for the Southern District of New York. As of writing, neither Holdings’ broker-dealer subsidiaries (including Lehman Brothers, Inc. [Lehman NY]) nor other subsidiaries (including Neuberger Berman Holdings, LLC, its asset management subsidiary) have commenced insolvency proceedings in the United States.

On September 7, the U.S. Treasury Department and the Federal Housing Finance Authority (FHFA) placed Fannie Mae and Freddie Mac into conservatorship, and announced (i) Treasury’s entry into a Senior Preferred Stock Purchase Agreement with each Government Sponsored Entity (GSE), (ii) the creation of a Government Sponsored Entity Credit Facility (GSECF), and (iii) the adoption of a GSE Mortgage Backed Securities (MBS) Purchase Program.

On July 28, 2008, the FDIC published a Notice of Proposed Rulemaking in the Federal Register seeking to establish recordkeeping requirements for qualified financial contracts (“QFCs”) held by banks in “troubled” condition. The purpose of the Proposed Rule is to enable the FDIC, upon receivership, to make expeditious and well-informed decisions with respect to the management of a failed bank’s QFC portfolio.