As widely reported, the bankruptcy auction for the Texas Rangers Major League Baseball franchise ended with a winning $593 million bid from an ownership group led by Nolan Ryan.

The Bankruptcy Abuse and Consumer Protection Act of 2005 (BAPCPA) purported to eliminate the ability of chapter 11 debtors in possession to pay bonuses to management through Key Employee Retention Plans. However, in recognition of the fact that a real need often exists to incentivize key employees to remain with a reorganizing or liquidating business, bankruptcy courts have approved incentive plans providing for payments to insiders and other employees. Such plans must be carefully crafted to avoid the restrictions on retention bonuses post-BAPCPA.

The United States District Court for the Western District of Pennsylvania has held that an excess liability insurer had no standing to object to a Chapter 11 bankruptcy debtor's reorganization plan where the plan, although requiring contributions from the insurer's policyholder, was not contingent on the policyholder obtaining any funds or proceeds from its insurer. Hartford Accident and Indemnity Co., et al. v. North Am. Refractories Cos. et al., Civ. Action No. 07-1750, Bankr. Case No. 02-20198 (JFK) (W. D. Pa. Jul. 25, 2008).

The Bankruptcy Code facilitates asset sales in chapter 11 by offering incentives to buyers and flexibility in structuring and timing the sale. A buyer can acquire assets free and clear of liens and is permitted to "cherry-pick" the debtor's contracts and leases to select only those it wants to keep. The assets and sale process can be structured in many ways, including auctions, private sales, lot or bulk sales, and going concern transactions.

The Key Parties

The Court of Appeals for the Fourth Circuit recently held that a bankruptcy court did not have jurisdiction to hear a chapter 11 debtor's breach of contract and tortious interference claims, which the debtor filed after its chapter 11 plan had been confirmed and substantially consummated. Valley Historic Limited Partnership v. Bank of New York, No. 06-1571,___ F.3d ___, WL 1439734 (4th Cir. May 17, 2007). This decision delineates the limits of bankruptcy court's jurisdiction over claims filed by the debtor after plan confirmation.

Background

A recent opinion out of the United States Bankruptcy Court for the Eastern District of Virginia (Richmond Division) serves as a reminder to secured creditors to steer clear of conduct that a bankruptcy court may deem inequitable and provide the court with cause to limit the secured creditor’s credit bid rights.  In In re The Free Lance-Star Publishing Co.

On April 29, 2013, the Supreme Court of the United States declined to hear an appeal of the Second Circuit's decision dismissing, as equitably moot, appeals arising out of the bankruptcy of Charter Communications and let stand the opinion in In re Charter Communications, Inc., 691 F.3d 476 (2d Cir. 2012). As a result, the application of the equitable mootness doctrine, as it applies to bankruptcy appeals, will continue to vary among jurisdictions.

Avoidance Preferences Generally

As many creditors have experienced firsthand, the bankruptcy code allows a debtor, trustee or other estate representative to recover certain payments made within 90 days of the date a bankruptcy case was filed.

The United States District Court for the Central District of California has granted motions by eight directors and officers liability insurers to withdraw the reference to the bankruptcy court of two coverage actions involving coverage for claims against former directors and officers of a bank holding company.  In re IndyMac Bancorp, Inc., Nos. CV11-02600; CV11-02605; CV11-02950; CV11-02988 (C.D. Cal. May 17, 2011).  Wiley Rein LLP represents an excess insurer and the primary Side A insurer in the litigation.

The United States Bankruptcy Court for the District of Delaware has held that policy proceeds were not part of the insured entity’s bankruptcy estate because previous entity claims were dismissed with prejudice, it was highly speculative that the bankruptcy trustee would approve indemnification of directors and officers and the policy’s priority of payment provision provided that entity coverage was only available after payment of proceeds for direct coverage to insured persons. In re Downey Fin. Corp., 428 B.R. 595 (D. Del. Bankr. May 7, 2010).