A. Background to Chapter 9 Filing

On June 25, 2013, the Bankruptcy Court for the Southern District of New York (the “Court”) issued a memorandum decision in the Lehman Brothers SIPA proceeding¹ holding that claims asserted by certain repurchase agreement (“repo”) counterparties (the “Representative Claimants”) did not qualify for treatment as customer claims under SIPA.

Cramdown Plan Stays Suits Against Corporate Parent

The United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) recently issued a memorandum decision in the American Airlines, Inc.

The Bankruptcy Court for the Western District of Washington has now joined other states in invalidating transfers to a self-settled trust on a variety of grounds in the latest asset protection self settled trust case, In re Huber, 2012 Bankr. LEXIS 2038 (May 17, 2013).

Introduction

Judge James M. Peck of the Bankruptcy Court for the Southern District of New York held, on June 25, 2013 (the “Lehman Op.”),1that claims under repurchase transactions (“Repos”) do not qualify as customer claims and therefore are not entitled to the priority or coverage provided for customers’ claims under the Securities Investor Protection Act (“SIPA”).

CASE SNAPSHOT

Buyers of assets through the bankruptcy court process seek comfort and solace in the entry of a sale order providing for the transfer of assets “free and clear” of all liabilities. Except for those liabilities expressly assumed by the buyer and new owner, the bankruptcy court order typically includes exacting and precise language transferring those assets, under the imprimatur of the United States Bankruptcy Court, free and clear of all liabilities.

In these days of continued integration of the world economy, it is not unusual for a foreign-based business enterprise to own assets of substantial value in the United States either directly or through an affiliate. If the foreign enterprise commences an insolvency proceeding in its home country, there is substantial risk that local American creditors of the insolvent company may seek to attach these assets to satisfy their own claims to the prejudice of non-U.S. creditors.

On June 26, 2013, US Bankruptcy Judge Martin Glenn, overseeing the chapter 11 case of Residential Capital, LLC (ResCap), unsealed a 1,900-page report produced by court-appointed examiner, Arthur J. Gonzalez, and his professionals, Chadbourne & Parke LLP and Mesirow Financial Consulting, LLC. The Examiner Report was the culmination of a ten-month investigation that identified amyriad of causes of action, potentially worth billions of dollars, arising fromdozens of transactions involving ResCap's parent, Ally Financial Inc., its subsidiary Ally Bank, and Cerberus.