Much to the chagrin of golf course lenders, bankruptcy and appellate courts around the country have consistently held that a properly-perfected mortgage or security interest in golf course revenues, including cart rentals and green fees, is not sufficient to grant the lender an interest in the golf course’s “cash collateral” if the business ends up in bankruptcy*. The result is that those revenues can be spent by the golf course borrower in the bankruptcy case to cover its administrative or operating expenses over the objection of the lender.
This morning the US Supreme Court issued a ruling providing that severance payments are taxable FICA wages. In United States vs. Quality Stores, Quality Stores made severance payments to employees who were involuntarily terminated as part of Quality Stores’ Chapter 11 bankruptcy. Quality Stores paid and withheld income and FICA taxes from the severance payments. Later, Quality Stores sought a refund on behalf of itself and former employees for FICA taxes withheld and paid.
Two recent decisions may affect the assets of individuals available to satisfy creditors' claims in bankruptcy. In the first decision, the Bankruptcy Court for the Eastern District of New York determined that married, joint debtors received value in exchange for tuition payments and rejected the bankruptcy trustee's arguments that the tuition payments were fraudulent transfers.
Bankruptcy Court Decision
It is often said that the acid test of a security interest or lien on property is the bankruptcy of the property owner. If that person or entity files a bankruptcy petition, the bankruptcy trustee has a number of options to challenge or even avoid certain liens. A lien that is not properly perfected is subject to attack by a trustee under both the “strong-arm clause” (Bankruptcy Code § 544) and the preference provisions (Bankruptcy Code § 547). If the lien is avoided, the property can then be sold and the proceeds distributed to the unsecured creditors.
In another judicial decision springing from Lehman Brothers, as a result of the likely surplus in the estate of Lehman Brothers International (Europe) (in administration) (LBIE) after all the provable debts have been paid, Mr Justice Richards has issued a ‘statement of conclusions’ in what is called the Waterfall Application. A more detailed judgement is expected in late March 2014. We summarise the conclusions below.
Ranking and Contributions of Shareholders of Inlimited Companies
Many bank holding companies (BHCs) are beginning to face tough choices as the five-year interest deferral period on their trust preferred securities (TruPS) is coming to an end. Consider the following: on Feb. 10, 2014, First Mariner Bancorp, immediately following the end of its five-year interest deferral period on $52 million of TruPS, filed a voluntary Chapter 11 petition and announced its plans to sell its wholly owned subsidiary, 1st Mariner Bank, in a court-supervised Section 363 sale.
On March 4, 2014, a unanimous United States Supreme Court decided Law v. Siegel1 and clarified that exercising statutory or inherent powers, a bankruptcy court may not contravene specific statutory authority. Law will likely have broad implications for business bankruptcy cases even though it directly involved the exercise of a bankruptcy judge’s authority under section 105(a) to create a pragmatic solution to the actions of a bad actor in a consumer bankruptcy case.
Which law firm is rumored to be failing this week, and who will be next? Although, inevitably, the target firms insist that retaining bankruptcy counsel does not mean a filing is imminent, such legal industry headlines are catnip for strong firms hoping to bolster their own talent by luring lateral hires away from weak ones. With those opportunities, however, comes the real risk of being sued later by the failed firm’s bankruptcy trustee.