In a recent decision, the Court of Appeals for the Third Circuit (the “Third Circuit”) affirmed¹ the bankruptcy court’s decision in In re KB Toys, Inc.,² and held that a claim that is subject to disallowance under section 502(d) of the Bankruptcy Code in the hands of the original claimant is similarly disallowable when that claim is held by a subsequent transferee because the section is applicable to “claims” rather than “claimants.” This holding is in contrast to a prior decision of the District Court for the Southern District of New York in

Recently, in connection with the bankruptcy case of KB Toys, the Third Circuit Court of Appeals disallowed a claim held by a claim purchaser, citing that the original holder of the claim had received a preference payment prior to the bankruptcy case.¹ The ruling affirmed an earlier decision of the Delaware Bankruptcy Court, which we discussed in a previous memorandum², in which the Bankruptcy Court held that (i) 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; and (ii) disabilities attach t

On September 12, 2013, the U.S. Court of Appeals for the Second Circuit (the Second Circuit) affirmed the rulings of the U.S. Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) in the bankruptcy cases of American Airlines and related debtors (the Debtors) holding that the Debtors do not have to pay a make-whole premium when repaying certain of their outstanding financings (the Indentures).

On November 15, 2013, the United States Bankruptcy Court for the Southern District of New York (Glenn, J.) issued a lengthy decision¹ in the Chapter 11 case of Residential Capital, LLC (“ResCap”). An important holding contained in this decision is that the bankruptcy claims of holders of notes issued with original issue discount (or OID) for tax and accounting purposes in a “fair value” exchange (an exchange for notes with a lower face amount) need not be reduced by any unaccreted OID^.2  

On October 7, 2013, the United States Supreme Court refused to review a Seventh Circuit decision¹ in the Castleton Plaza, LP case, which held that a new value plan proposed by the debtor in which an equity-holder’s spouse would provide a cash infusion to the debtor in exchange for 100 percent of the reorganiz

Upon learning that its borrower has filed a case under chapter 11 of the Bankruptcy Code,  a secured lender may decide not to participate in that case. The lender may want to ignore the bankruptcy case in order to avoid the expense of retaining bankruptcy counsel, or, relying on the general rule that liens pass through bankruptcy unaffected,  may simply prefer to wait until the chapter 11 case ends and then enforce its lien. In a recent Fifth Circuit Court of Appeals decision, Acceptance Loan Company, Incorporated v.

In a recent advisory, we reported on an apparently favorable decision to secured creditors from the Fifth Circuit Court of Appeals that held that a secured creditor’s claim survives bankruptcy where the secured creditor received notice of the case and was found to have not actively participated in it.

This week, the U.S. House of Representatives passed the Asbestos Bankruptcy Trust Transparency Bill. The legislation would, if enacted into law, require bankruptcy trusts to file quarterly reports with bankruptcy courts disclosing the names, asbestos-related exposure history, and basis of the victim’s claims for each claimant. These reports would be made available on the courts’ public dockets. Confidential medical records or social security information would not be disclosed.

In an adversary proceeding filed in the American Home Mortgage Holdings, Inc. bankruptcy case, the Delaware bankruptcy court affirmed that triangular setoffs are not allowed under the Bankruptcy Code and cannot be modified by contract or under the Bankruptcy Code’s safe harbor provision. In re American Home Mortgage Holdings, Inc., et al., Adv. Proc. No. 11-51851 (Bankr. D. Del. Nov. 8, 2013). Two contracts were at issue – a swap agreement between a bank and American Home Mortgage Investment Corp.

The Bankruptcy Court for the Southern District of New York overseeing the Residential Capital (“ResCap”) cases issued an opinion on November 15, 2013 (the “Opinion”)2 allowing the unamortized interest associated with original issue discount (“OID”) that was generated in a fair market value exchange and claimed by ResCap’s junior secured noteholders (the “Holders”). While the OID ruling is only one component of the Opinion,3 it may have far reaching implications, as already evidenced in the pricing of other OID notes that were the product of fair market value exchanges.