CR&B Alert
Commercial Restructuring & Bankruptcy News
In This Issue:
• Consequences of the Failure of a Secured
Creditor to File a Timely Proof of Claim—2
• Private Equity Funds Potentially Liable for
Portfolio Company’s Unfunded Pension
Liability—2
• Make-Whole Payment Not ‘Unmatured
Interest’—3
• Tax Status of Q-Sub Debtor Not Estate
Property; Debtor Has No Standing to Challenge
Parent’s Sub-S Revocation—3
• Don’t Let Excess Insurers Avoid Coverage
Based on Settlements or Bankruptcy—4

On October 7, 2013, the United States Supreme Court refused to review a Seventh Circuit decision¹ in the Castleton Plaza, LP case, which held that a new value plan proposed by the debtor in which an equity-holder’s spouse would provide a cash infusion to the debtor in exchange for 100 percent of the reorganiz

In the first appellate court decision on the issue, the Third Circuit Court of Appeals recently held that trade claims subject to disallowance under section 502(d) of the Bankruptcy Code are disallowable “no matter who holds them.”¹ In In re KB Toys Inc., the Third Circuit affirmed Bankruptcy and District Court decisions holding that trade claims subject to disallowance in the hands of an original claimant remain disallowable in the hands of a subsequent transferee.

The U.S. Constitution enjoins each state to accord “full faith and credit” to “the public acts, records, and judicial proceedings of every other State”. U.S. Const. Art. IV, § 1. However, a judgment creditor can’t directly enforce a judgment obtained in another state in California. The other state’s judgment must first be turned into a California judgment. The statutory mechanism for effecting this is the Sister State and Foreign Money—Judgments Act, aka the SSFMJA, Code Civ. Proc. § 1710.10 et seq.

Major creditors of the city of Detroit filed a request in the bankruptcy proceeding to hasten the process of evaluating the value of the collection of theDetroit Institute of Arts.

InLewis v. Eberle & BCI Services, LLC, 2013 WL 4483529 (D.N.J. Aug. 19, 2013), a New Jersey district court dismissed the plaintiff’s claims brought under the Americans with Disabilities Act and the Family and Medical Leave Act because she failed to disclose them as “assets” in a simultaneous bankruptcy proceeding. The plaintiff was engaged in Chapter 7 bankruptcy proceedings when she filed suit against her former employer, but she did not revise her bankruptcy petition to identify those claims.

In In re KB Toys Inc.,¹ the US Court of Appeals for the Third Circuit affirmed the holdings of the lower courts that claims subject to disallowance under Section 502(d) of the Bankruptcy Code are “similarly disallowable in the hands of the subsequent transferee.” According to the Third Circuit, when a creditor owes property to the estate, until that property is returned to the estate, that creditor’s claim, regardless of who holds it, is impaired, and the subsequent sale of that c

Upon learning that its borrower has filed a case under chapter 11 of the Bankruptcy Code,  a secured lender may decide not to participate in that case. The lender may want to ignore the bankruptcy case in order to avoid the expense of retaining bankruptcy counsel, or, relying on the general rule that liens pass through bankruptcy unaffected,  may simply prefer to wait until the chapter 11 case ends and then enforce its lien. In a recent Fifth Circuit Court of Appeals decision, Acceptance Loan Company, Incorporated v.

Commercial landlords hailed as a significant victory the enactment in 2005 of a 210-day “drop dead” period after which a lease of nonresidential real property with respect to which the debtor is the lessee is deemed rejected unless, prior to the expiration of the period, a chapter 11 debtor in possession (“DIP”) or bankruptcy trustee assumes or rejects the lease.

InGrayson Consulting, Inc. v. Wachovia Securities, LLC (In re Derivium Capital LLC), 716 F.3d 355 (4th Cir. 2013), the U.S. Court of Appeals for the Fourth Circuit examined whether certain securities transferred and payments made during the course of a Ponzi scheme could be avoided as fraudulent transfers under sections 544 and 548 of the Bankruptcy Code. The court upheld a judgment denying avoidance of pre-bankruptcy transfers of securities because the debtor did not have an “interest” in the securities at the time of the transfers.