On May 15, 2012, the United States Court of Appeals for the Eleventh Circuit held that security interests and liens granted by subsidiaries of a borrower to refinance obligations owed to the borrower’s lenders constituted fraudulent transfers under section 548(a)(1) of the Bankruptcy Code in the borrower’s and subsidiaries’ bankruptcy cases.Senior Transeastern Lenders v. Official Committee of Unsecured Creditors (In re TOUSA, Inc.), 2012 WL 1673910 (11th Cir. 2012).
Nearly a year has passed since the Supreme Court held, in Stern v. Marshall,1 that bankruptcy courts may not determine a potentially broad range of “private rights” disputes arising in bankruptcy proceedings. Lower courts have grappled with the practical implications of Stern, but it is not yet clear whether the decision will ultimately result in a significant curtailment of bankruptcy court power or prove narrower in application.
The outcome of the TOUSA appeal has been much anticipated and closely watched by the lending community, their counsel and advisors, and legal scholars. On May 15, 2012, the Eleventh Circuit Court of Appeals issued its opinion (found here), reversing the District Court for the Southern District of Florida and affirming the Bankruptcy Court for the Southern District of Florida, at least insofar as to the bankruptcy court’s factual findings, but not remedies.
A purchaser of assets from a debtor in bankruptcy may not be able to rely entirely on bankruptcy court approval of the sale to bar a claim arising long after the sale and based on a claimed defect in a product sold by the debtor years prior to its bankruptcy.
Although bankruptcy court sale orders routinely shield asset purchasers from successor liability claims, that protection is not unlimited, particularly where a claimant did not and could not have received notice of the sale.
On May 15, 2012, the United States Court of Appeals for the Eleventh Circuit issued an opinion in the TOUSA, Inc.
On May 15, 2012, the Eleventh Circuit Court of Appeals upheld a ruling by the U.S. Bankruptcy Court for the Southern District of Florida, which required certain lenders to return $403 million in prepetition payments they had received from TOUSA, Inc.
Technological innovation has changed the landscape of domestic natural gas production from shortage to surplus. The result: a glut of natural gas and historically low prices. While many producers have successfully hedged against this risk to date, as older hedges roll off, many companies are unable to obtain replacement hedges at attractive prices. Some have even resorted to monetizing their in-the-money hedges to raise capital today (and borrowing against the future).
On May 4, 2012, the Delaware bankruptcy court inIn re KB Toys, Inc., et al. (KB Toys), handed down a thoughtful decision addressing the issue of whether impairments attach to a claim or remain with its seller. The KB Toys court held that “a claim in the hands of a transferee has the same rights and disabilities as the claim had in the hands of the original claimant. Disabilities attach to and travel with the claim.”
On May 15, 2012, the Eleventh Circuit Court of Appeals (the “Circuit Court”) issued an opinion in In re TOUSA, Inc.,1 in which it affirmed the original decision of the bankruptcy court and reversed the appellate decision of the district court. After a 13-day trial, the bankruptcy court had found that liens granted by certain TOUSA subsidiaries (the “Conveying Subsidiaries”) to secure new loans (the “New Term Loans”) incurred to pay off preexisting indebtedness to certain lenders (the “Transeastern Lenders”) were avoidable fraudulent transfers.
IN RE: USA BABY, INC. (March 28, 2012)
Scott Wallis owned 5% of USA Baby, Inc., a children's furniture franchisor. After its creditors forced it into reorganization, the bankruptcy trustee moved to convert the case to a liquidation. The bankruptcy judge agreed. Wallis moved twice for reconsideration. He alleged first that the trustee and franchisees committed fraud. He later argued that reorganization was possible if the franchisees paid fees that were due. The court denied his requests. Judge Lefkow (N.D. Ill.) affirmed. Wallis appeals.