Lessor of Equipment and Licensor of Intellectual Property In re Edscha North America, Inc. (Bankr. N.D. Ill.) Case no. 09-39055

Introduction

On November 13, 2009, the Court of Appeals for the Fifth Circuit ruled in the Stanford securities fraud case that the appointed receiver lacked authority to “claw back” principal and interest proceeds distributed to innocent investors/creditors because they have a legitimate ownership interest in the proceeds held in the accounts. This precedent has important implications for this and other ongoing “Ponzi” scheme cases.

The Stanford Case: Alleged Multi-Billion Dollar Ponzi Scheme

5620 Central Avenue, LLC recently filed for Chapter 11 bankruptcy, and, although no sale has been announced, the Debtor’s assets may be available for acquisition under the right circumstances. The Debtor’s real property is located at 5620 Central Avenue in El Cerrito, California, valued at $6 million. The property is described as parcels 510-053-32, 510-053-33 and 510-053-25. Real estate listings describe the property as a 142,000 sq. ft. vacant lot that is zoned C-3 Regional Commercial. The Debtor did not list any income.

The Eastern District of Pennsylvania held that secured creditors do not have a right to credit bid their claim when the sale of a debtor’s assets is conducted under a plan of reorganization.

To promote equal treatment of creditors, the US Congress has armed debtors with the power to bring suit to recover a variety of pre-bankruptcy transfers. Prominent among these is a debtor’s ability under Section 548 of the Bankruptcy Code to recover constructively fraudulent transfers — i.e., transfers made without fair consideration when a debtor is insolvent.

In a recent action, Granite Re filed suit against Federal Crop Ins. Corp., Risk Management Agency and Ann Frohman, in her capacity as Liquidator for the insolvent insurer, American Growers Ins., alleging that Growers owes unpaid reinsurance premiums to Granite Re. Following removal to Federal Court, the Liquidator moved to dismiss, advising that she claims no interest in the outcome of Granite Re’s litigation against FCIC/RMA and she will therefore forego any right she may have had to remain in the litigation as an interested or intervening party.

The United States Bankruptcy Court for the District of New Jersey denied fourteen plans of reorganization filed by Congoleum Corporation before the court finally dismissed the case on February 27, 2009. While the Congoleum bankruptcy proceedings involve numerous issues, this article focuses generally on insurer standing and specifically, on whether Congoleum’s insurers had standing to object to Congoleum’s twelfth plan of reorganization.

The following is a list of some recent larger U.S. bankruptcy filings in various industries. To the extent you are a creditor to any of these debtors, or other entities which may have filed for bankruptcy protection, you as a creditor are entitled to certain protections under the Bankruptcy Code.  

GAMING  

The Majestic Star Casino LLC is seeking Chapter 11 bankruptcy protection.  

RESEARCH  

In the chapter 11 proceedings for ION Media Networks, a distressed fund (Cyrus) purchased second lien debt and then employed what the Court characterized as "aggressive bankruptcy litigation tactics as a means to gain negotiating leverage." In a November 24, 2009 Memorandum Decision, Judge James Peck of the United States Bankruptcy Court for the Southern District of New York stopped Cyrus in its tracks, holding that the Intercreditor Agreement (ICA) between the first lien and second lien lenders would be enforced to deny Cyrus (i) the ability to assert that certain assets were outside of th