Previously, on June 16, 2010, the Joint Administrators (the “Administrators”) of Lehman Brothers International (Europe) (“LBIE”) announced that they would be testing the feasibility of their so-called Consensual Approach to the resolution of LBIE’s unsecured creditor claims. They anticipated the Consensual Approach would be applicable to financial trading creditors ("FTCs") and conceptually outlined the Consensual Approach as follows:

The U.S. Court of Appeals for the Seventh Circuit held on May 5, 2009, that a group of secured lenders were fully secured and “entitled to a full recovery” from the debtor despite the bankruptcy court’s improper valuation of the collateral (improved airport terminal space) securing the lenders’ underlying $60 million loan. In re United Airlines, Inc., ___ F.3d ___, 2009 U.S. App. LEXIS 9648 (7th Cir. 5/5/09) (Easterbrook, Ch. J.). The lower courts had valued the lenders’ collateral at $35 million, leaving them with a $25 million unsecured claim.

The United States Bankruptcy Court for the Southern District of New York recently awarded an oversecured lender post-petition interest on the full amount of its secured claim at the default rate set forth in the lender’s contract (19%) plus compound (PIK) interest up to the aggregate rate of 25% (the maximum rate allowable under New York State usury laws). In re Urban Communicators PCS Limited Partnership, et al., 2007 Bankr. LEXIS 4062 (Bankr. S.D.N.Y. 12/11/07) (Gerber, B.J.).

A Chapter 11 corporate debtor’s monetary penalty obligation owed to the Federal Communications Commission (“FCC”), resulting from “fraud on consumers,” survived the debtor’s reorganization plan discharge, even when the FCC “was not a victim of the fraud,” held the U.S. District Court for the Southern District of New York on Sept. 2, 2021. In re Fusion Connect Inc., 2021 WL 3932346, *1 (S.D.N.Y. Sept. 2, 2021).

A creditor’s “later-in-time reclamation demand is ‘subject to’ [a lender’s] prior rights as a secured creditor,” held the U.S. Court of Appeals for the Seventh Circuit on Feb. 11, 2020. In re HHGregg, Inc., 2020 WL 628268 (7th Cir. Feb. 11, 2020). And “[w]hen a lender insists on collateral, it expects the collateral to be worth something,” said the U.S. Court of Appeals for the Third Circuit on Feb. 11, 2020, when rejecting a guarantor’s “novel reading” of his security agreement. In re Somerset Regional Water Resources, LLC, 2020 WL 628542 (3d Cir. Feb. 11, 2020).

A bankruptcy court decision recently detailed how courts applying Bankruptcy Code (“Code”) § 303(i) can sanction creditors who “abuse… the power given to [them]… to file an involuntary bankruptcy petition.” In re Anmuth Holdings LLC, 2019 WL 1421169, * 1 (Bankr. E.D.N.Y. Mar. 27, 2019).

“ . . . [A] bankruptcy court may not designate claims for bad faith simply because (1) a creditor offers to purchase only a subset of available claims in order to block a [reorganization] plan . . . and/or

“[T]he debtor … did not retain sufficient rights in the assigned rents under Michigan law for those rents to be included in the bankruptcy estate,” held the U.S. Court of Appeals for the Sixth Circuit on May 2, 2017. In re Town Center Flats LLC, 201 U.S. App. LEXIS 7733, *2 (6th Cir. May 2, 2017). Relying on Michigan law and the language of the relevant documents, the court reversed the bankruptcy court’s holding that gave the Chapter 11 debtor access to the assigned rents as operating funds during its reorganization.

Relevance

A Chapter 11 debtor’s financial advisers were entitled to a “Success Fee” based on a percentage of a $50-million “debt-to-equity conversion,” held a split U.S. Court of Appeals for the Fifth Circuit on May 4, 2016. In re Valence Technology, Inc., 2016 WL 2587109, *1 (5th Cir. May 4, 2016) (2-1). Key to the opinion was the parties’ concession that the “debt-to-equity conversion qualified as a Private Placement under [their] engagement agreements.” Id., at n.1.

A “bank [making a secured rescue loan] had information that should have created the requisite suspicion … to conduct a diligent search for possible dirt” — i.e., whether the debtor had the right to pledge $312 million of customer securities, held the U.S. Court of Appeals for the Seventh Circuit on Jan. 8, 2016.In re Sentinel Management Group, Inc., 2016 WL 98601, at *2 (7th Cir. Jan. 8, 2016) [“Sentinel V”]. The Seventh Circuit reversed the district court, voided the defendant bank’s lien as a fraudulent transfer, and rejected the bank’s good faith defense.