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, Judge Karen Brown has denied motions to dismiss or convert Omega’s chapter 11 cases or for relief from stay filed by Omega’s Senior Lenders and supported by Omega’s Junior Lenders and Unsecured Creditors’ Committee. In the view of Lloyd’s List, a leading industry publication:
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
The U.S. Supreme Court has agreed to settle the dispute as to whether secured creditors can credit bid in connection with asset sales done pursuant to liquidating plans. The Third Circuit in the Philadelphia Newspapers case and the Fifth Circuit in the Pacific Lumber case held that secured creditors do not have a statutory right to credit bid their debt at a sale conducted under a plan of reorganization pursuant to which the debtor elects to provide the secured creditors with the “indubitable equivalent” of their secured claim.