Investors have agreed to settle securities claims against more than 30 underwriters who underwrote in excess of $31 billion in debt and equity offerings for Lehman Brothers, the collapse of which was a key chapter in the global financial crisis.  The plaintiffs in these actions alleged that the underwriters, which included Bank of America and units of Bank of New York Mellon, Citigroup and Wells Fargo, assisted Lehman Brothers in making misstatements about its finances prior to its implosion and eventual bankruptcy filing.  The proposed settlement still requires district court app

One of the concerns for creditors dealing with a distressed company is the possibility of bankruptcy, and the risk that payments to the creditor on account of previously incurred debt will be avoided as a "preference" in the debtor's bankruptcy proceeding. Generally speaking, a "preference" is a transfer of the debtor's property on the eve of bankruptcy to satisfy an old debt. The Bankruptcy Code allows a bankrupt company to reach back 90 days and avoid any transfers made to creditors during that time, subject to certain defenses.

Generic Legal Advice Memorandum AM 2011-003 (August 18, 2011)

Overview

Unless you are a specialized lender who makes loans to debtors-in-possession, you do not make a loan with the expectation that your borrower is going to file bankruptcy. Although the number of bankruptcy filings in California and nationally is trending slightly lower, filings remain at higher than normal levels. Nearly every lender has received the notice of a bankruptcy filing that was unexpected and then faced decisions as to what to do next.

In an Order issued yesterday by the Bankruptcy Court for the Southern District of Texas in the Omega Navigation Enterprises, Inc. (Omega) chapter 11 cases (the Show Cause Order), Judge Karen Brown has directed Omega’s Senior Lenders, Junior Lenders and Unsecured Creditors’ Committee to show cause whether they should be sanctioned for the conduct described in the Show Cause Order, a copy of which can be found HERE.

In the last several months, there have been some significant legal developments that could impact acquisition finance. This article will survey some of the more notable ones.

In a case with implications for buyers of assets in a bankruptcy court-ordered sale under section 363(b) of the Bankruptcy Code, the Bankruptcy Court for the Southern District of New York recently issued a decision limiting the ability of manufacturers that are debtors in a bankruptcy case to sell assets free and clear of future liabilities.

In re Lehman Brothers Inc., Bankr. Case No. 08-01420 (JMP) (SIPA), 2011 WL 4553015 (Bankr. S.D.N.Y. Oct. 4, 2011)  

CASE SNAPSHOT

Grossman v. Lothian Oil Incorporated, 650 F.3d 539 (5th Cir., 2011)  

CASE SNAPSHOT

In a case of first impression in the Fifth Circuit, the court recharacterized a claim of a non-insider, declining to create a per se rule that recharacterization could only apply to insiders.

FACTUAL BACKGROUND

Effective December 1, 2011, a number of the Federal Rules of Bankruptcy Procedure were amended. Two of the amendments specifically address the information required on Proof of Claim forms.

The amendment to Rule 3001 (Proof of Claim) is expanded to require that additional supporting information be filed with proofs of claim in individual debtor cases. The amendment authorizes a court to impose sanctions against a creditor that fails to provide the required information.  

Northern Capital, Inc. v. The Stockton National Bank, et al. (In re Brooke Corporation), 2011 WL 4543484 (Bankr. D. Kan. Sept. 28, 2011)

CASE SNAPSHOT