Although the number of commercial bankruptcy filings has dropped, the number of lawsuits arising out of these bankruptcies is on the rise. These lawsuits are called “avoidance actions” because they seek to avoid or “unwind” transfers to third parties. The most common avoidance actions are “preference” actions, filed against unsecured trade creditors to recover alleged “preferential payments” made by the debtor.
In response to a rehabilitation plan for Delaware insurance company Manhattan Re proposed by its receiver, American Motorists Insurance Company (a reinsurer of Manhattan Re) filed objections with the Delaware Court of Chancery. AMICO argued that the plan should be rejected because the receiver improperly intended to dispose of certain cash holdings that AMICO claimed constituted cash collateral under its reinsurance agreements with the company.
In re Provo Gateway, LLC (Bankr. D. Utah) Case no. 11-31259
In re Gelt Financial Corporation (Bankr. E.D. Pa.) Case no. 11-15827
In re East Coast Abatement Co. Inc. (Bankr. E.D. Va.) Case no. 11-73560
In re Summer View Sherman Oaks Apartments, LLC (Bankr. C.D. Cal.) Case no. 11-19800
The ability of a bankruptcy court to reorder the priority of claims or interests by means of equitable subordination or recharacterization of debt as equity is generally recognized. Even so, the Bankruptcy Code itself expressly authorizes only the former of these two remedies. Although common law uniformly acknowledges the power of a court to recast a claim asserted by a creditor as an equity interest in an appropriate case, the Bankruptcy Code is silent upon the availability of the remedy in a bankruptcy case.
In re MicroBlade, LLC (Bankr. W.D. Wis.) Case no. 11-14981
Postconfirmation liquidation and litigation trusts have become an important mechanism in a chapter 11 bankruptcy estate’s arsenal, allowing for the resolution of claims and interests without needlessly delaying confirmation in the interim. The specter of postconfirmation litigation may seem unremarkable. Section 1123(b)(3)(B) of the Bankruptcy Code states that a plan may provide for retention or enforcement by the reorganized debtor, the trustee, or a representative of the estate of any claim or interest belonging to the estate.
In re Piedmont Center Investments, LLC (Bankr. E.D. Wis.) Case no. 11-32453