The ability to borrow money during the course of a bankruptcy case is an important tool available to a chapter 11 debtor-in-possession (“DIP”). Often times, the debtor’s most logical choice for a lender is one with an existing pre-bankruptcy relationship with the debtor. As a condition to making new loans, however, lenders commonly require the debtor to waive its right to pursue avoidance or lender liability actions against the lender based upon pre-bankruptcy events.

For the benefit of our clients and friends investing in European distressed opportunities, our European Network is sharing some current developments.

Recent Developments

THE YEAR IN BANKRUPTCY: 2013
Charles M. Oellermann and Mark G. Douglas
The eyes of the financial world were on the U.S. during 2013. The view was dismaying
and encouraging in roughly equal parts. The U.S. rang in the new year with a postlast-
minute deal to avoid the Fiscal Cliff that kicked negotiations over “sequestration”—$
110 billion in across-the-board cuts to military and domestic spending—two
months down the road, but raised income taxes (on the wealthiest Americans) for
the first time in two decades.

Following the culmination of two public comment periods spanning more than a year, the Office of the United States Trustee, a unit of the U.S. Department of Justice (the “DOJ”) assigned to oversee bankruptcy cases, issued new final guidelines on June 11 governing the payment of attorneys’ fees and expenses in large chapter 11 cases—cases with $50 million or more in assets and $50 million or more in liabilities.

Confirmation of a chapter 11 plan providing for the reorganization or liquidation of a debtor is the culmination of the chapter 11 process. To promote the fundamental policy of finality in that process, the general rule is that a final confirmation order is inviolable. The absence of certainty that the transactions effectuated under a plan are valid and permanent would undermine chapter 11’s fundamental purpose as a vehicle for rehabilitating ailing enterprises and providing debtors with a fresh start.

Summary

On 26 July 2012, the Pensions Regulator (the 'Regulator') issued a statement on financial support directions (FSDs) with the intention of providing further guidance and comfort with regard to the circumstances in which it will issue an FSD after a company has been placed into administration.

2012 is shaping up as a year of bankruptcy first impressions for the Ninth Circuit. The court of appeals sailed into uncharted bankruptcy waters twice already this year in the same chapter 11 case. On January 24, the court ruled in In re Thorpe Insulation Co., 2012 WL 178998 (9th Cir. Jan. 24, 2012) ("Thorpe I"), that an appeal by certain nonsettling asbestos insurers of an order confirming a chapter 11 plan was not equitably moot because, among other things, the plan had not been "substantially consummated" under the court's novel construction of that statutory term.

In a victory for secured creditors, the Seventh Circuit Court of Appeals recently held inRiver Road Hotel Partners, LLC v. Amalgamated Bank (In re River Road Hotel Partners, LLC), 2011 WL 2547615 (7th Cir. June 28, 2011), that a dissenting class of secured lenders cannot be deprived of the right to credit-bid its claims under a chapter 11 plan that proposes an auction sale of the lenders’ collateral free and clear of liens.

When an airline goes bankrupt, do the owner participants in aircraft leverage-lease transactions have a right to recover on monetary claims (worth billions) based on tax indemnification agreements ("TIAs")? The answer lies in the meaning of the words "pay/paid/pays," which had been the subject of conflicting interpretations in the bankruptcy and district courts in the Northwest Airlines and Delta Air Lines bankruptcy cases.

On April 30, 2009, the Ministry of Finance and the State Administration of Taxation (the "SAT") jointly issued the Notice on Certain Issues of Corporate Income Tax Treatment of Enterprise Reorganizations (the "Notice"), Cai Shui (2009) No. 59. The Notice provides corporate income tax treatment of various types of reorganizations including debt restructurings, acquisitions of equity, acquisitions of assets, mergers, and de-mergers.