The U.S. Court of Appeals for the Seventh Circuit, on Feb. 14, 2013, held that an insider of a Chapter 11 partnership debtor cannot avoid the “competition rule” in a new-value reorganization plan. The debtor’s equity owner arranged for his wife, also an “insider,” to contribute new value to obtain the equity of the reorganized debtor. In re Castleton Plaza, LP, — F.3d –––, 2013 WL 537269 at *1 (7^th Cir., Feb. 14, 2013).

A recent ruling in the American Airlines bankruptcy case enforcing an automatic acceleration upon bankruptcy provision serves as a reminder that the enforceability of so-called ipso facto provisions in debt instruments remains an unsettled, forum-dependent question.      

Public policy in New York prompted the establishment of, and recent increase to the Homestead Exemption (the “Exemption”), codified in the CPLR at §5206.  The Exemption, a statutorily created right, affords property owners (and their surviving heirs) certain protections from a creditor’s right to levy against a judgment debtor’s real property for the purpose of satisfying a personal money judgment.  The rationale behind the need for the Exemption is to ensure that a property owner is not left wholly insolvent once his primary residence is taken from him.

A recent decision in the protracted litigation by lenders of Extended Stay to recover under guaranties executed by owners of Extended Stay highlights the need for clear and unambiguous drafting in intercreditor agreements.

On occasion, an owner files a chapter 7 bankruptcy during or in connection with an association’s foreclosure.  While that chapter 7 bankruptcy may slow that foreclosure, it will absolutely not end it.  A chapter 7 bankruptcy ‘stays’ that foreclosure, sure.  That chapter 7 bankruptcy stay remains in effect with respect to “property of the estate” until it that property (the unit) is no longer property of the estate.  During the course of a chapter 7 bankruptcy, the bankruptcy trustee eventually ‘abandons’ the property of the estate.  Once that ‘abando

Official committees of unsecured creditors (Committees) serve a vital role in protecting the rights of the general unsecured creditors during a chapter 11 bankruptcy case. 

A long-struggling company’s failure to issue written notice to its employees 60 days in advance of shutting down operations, as required by the Worker Adjustment and Retraining Notification (“WARN”) Act, is excused by the Act’s “unforeseeable business circumstances” exception, the federal appeals court in New Orleans held. Angles v. Flexible Flyer Liquidating Trust, 2013 U.S. App. LEXIS 2850 (5th Cir. Feb. 11, 2013). 

In In the Matter of Castleton Plaza, LP,¹ the Court of Appeals for the Seventh Circuit held that a new value plan that leaves creditor claims unpaid must be subjected to a market test if the new value is contributed by an insider. The decision by the Seventh Circuit expanded the competition requirement to insiders whether or not the insider is a holder of a claim or interest against the debtor.

On February 14, 2013, the United States Court of Appeals for the Seventh Circuit in In re Castleton Plaza, LP,¹ became the first court of appeals to consider whether a competitive auction is required when a debtor’s plan of reorganization provides an “insider” that does not hold an equity interest in the debtor with an exclusive option to purchase equity in exchange for new value since the Supreme Court’s landmark decision in 203 N. LaSalle² more than a decade ago.

Can an equity investor who directs an insider to contribute "new value" to a debtor under a plan of reorganization, so as to retain his interest in the company, avoid an express market test for that new equity? The answer to that question is a resounding "no," according to Chief Judge Easterbrook of the Seventh Circuit Court of Appeals in In re Castleton Plaza, LP, Case No. 12 Civ. 2639, 2013 WL 537269 (7th Cir. Feb. 14, 2013).