On June 9, 2014, the Supreme Court issued a decision in Executive Benefits Insurance Agency v. Arkison, a case that tested the extent of the jurisdiction of bankruptcy court judges to decide fraudulent transfer and certain other claims against non-debtors. Ropes & Gray LLP represented the petitioner in obtaining certiorari and in the Supreme Court proceedings.
Lenders and their attorneys are conditioned to believe that being over-secured is as good as life gets for a creditor. Lenders want to secure repayment with collateral that is valuable and liquid, while their attorneys ensure that the security interest is properly perfected. But, post-closing confidence in a job well done can quickly evaporate if the borrower files a bankruptcy case intending to sell the collateral.
On June 9, 2014, the US Supreme Court issued a unanimous decision in Executive Benefits Insurance Agency v. Arkison (“Executive Benefits”)1 that resolved a fundamental bankruptcy procedural issue that had arisen in the wake of Stern v.
In In re Residential Capital, LLC, the U.S. Bankruptcy Court for the Southern District of New York recently granted an oversecured creditor's request for postpetition interest at the contractual default rate, even though the debtor was insolvent. In doing so, the Bankruptcy Court rejected an argument that awarding postpetition interest at the default rate (which was 4% higher than the non-default rate) would provide an undue windfall to the oversecured creditor and harm unsecured creditors.
Why This Decision Is Important
The U.S. District Court for the District of Delaware has affirmed a bankruptcy court order which approved both a sale of the debtors’ assets and the establishment of an escrow account, which essentially provides a “gift” to fund a distribution to the debtors’ unsecured creditors. What is significant about this order is that it approved the use of gifting in a chapter 11 bankruptcy case.
Recently, the Federal Trade Commission (“FTC”) filed a limited objection in bankruptcy court to the proposed sale of assets of ConnectEdu, Inc. (“ConnectEdu”) on the grounds that the company’s privacy policy protecting customer personal information had potentially not been complied with.
As one bankruptcy court has said, “[b]ecause deals are the heart and soul of the [c]hapter 11 process, bankruptcy courts enforce them as cut by the parties.” Unfortunately, however, deals do not always turn out as the parties expected and there is sometimes litigation to determine what exactly was bargained for in a chapter 11 plan.
Where a document filed under seal in a bankruptcy case has nothing to do with the bankruptcy itself, is the public entitled to access the document? The United States District Court for the Eastern District of Virginia considered this unique question in Robbins v.
Secured creditors naturally want to be repaid. Sometimes secured creditors go as far as asking a debtor to waive its right to seek bankruptcy protection. Although such clauses are frequently held to be unenforceable, we previously have discussed exceptions for LLCs.