The Bankruptcy Code allows trustees, as well as debtors-in-possession and in some circumstances creditors’ committees, to set aside and recover certain transfers for the benefit of the bankruptcy estate. The purpose of the avoidance powers is to maximize funds available for creditors and to ensure equality of distribution among creditors’ claims. The avoidance powers are not without bounds, however, as the Code sets forth a number of exceptions — most notably, the so-called “securities contract safe harbor” under Section 546(e) of the Bankruptcy Code.

A debtor ordinarily may discharge debts in bankruptcy, unless one of several exceptions apply. One of the preclusions to dischargeability of certain debts, found in Section 523(a)(19) of the U.S.

Addressing a novel issue in In re: International Oil Trading Company, LLC, 548 B.R. 825 (Bankr. S.D. Fla. 2016), the United States Bankruptcy Court for the Southern District of Florida recently denied in part an involuntary debtor’s motion to compel production of communications between the judgment creditor who had filed the involuntary bankruptcy petition and the petitioner’s litigation funder. The Court found that the attorney-client privilege and work product protection were applicable to certain disclosures made to the litigation funder, a non-lawyer third-party.

Recent legal and regulatory developments have raised issues for those considering a loan-to-own acquisition strategy, and have continued to impact both the structure of highly leveraged financings and the makeup of those willing to provide it.

In re RML  --  Irrational Exuberance?

In the last several months, there have been some significant legal developments that could impact acquisition finance. This article will survey some of the more notable ones.

In a case with implications for buyers of assets in a bankruptcy court-ordered sale under section 363(b) of the Bankruptcy Code, the Bankruptcy Court for the Southern District of New York recently issued a decision limiting the ability of manufacturers that are debtors in a bankruptcy case to sell assets free and clear of future liabilities.

A recent decision in the Bankruptcy Court for the Southern District of New York (the “Court”) in the Lehman case has extended the unenforceability of ipso facto clauses to a provision triggered by the bankruptcy filing of an affiliate of a contractual party.

The United States Bankruptcy Court for the Southern District of Texas recently clarified the administrative expense standard applicable to indenture trustees by holding that they can recover fees and expenses as administrative expenses only when they make a “substantial contribution.” This standard requires a greater showing than “benefit to the estate,” which is the general administrative expense standard. In re Sanchez Energy Corp., No. 19-34508 (Bankr. S.D. Tex. May 3, 2021).

Background

One of the pleasures of life is re-encountering old friends, catching up on what’s happened while your lives have gone their separate ways, reminiscing about the good old days and reconnecting. It comes back so fast, it’s like you never were apart.

Me and the Liquidating Trust had just such an experience the other day.

Sutton 58 Associates LLC v. Pilevsky et al., is a New York case which gets to the heart of the enforceability of classic single-purpose entity restrictions in commercial real estate lending. At issue is how far a third-party may go to cause a violation of a borrower’s SPE covenants, and whether those covenants are enforceable at all.

A Defaulted Construction Loan and Frustrated Attempts to Foreclose:

The Delaware Bankruptcy Court recently dismissed a Chapter 11 bankruptcy case pending before it and recognized, under Chapter 15 of the Bankruptcy Code, the debtor’s bankruptcy proceeding in Belgium. Exelco NV (“Exelco”), a Belgian diamond distributor, owed KBC Bank NV (“KBC”) approximately US$14 million. KBC’s debt was secured by a pledge on essentially all of Exelco’s assets. Exelco’s debt was also guaranteed by an affiliated company and certain individuals. When Exelco defaulted on its debt obligations, KBC commenced a sort of involuntary insolvency proceeding in Belgium.