The United States Bankruptcy Court for the Southern District of New York has granted another preliminary injunction ordering an excess directors and officers liability insurer to advance defense costs, despite the fact that the insurer had denied coverage on the basis of a prior knowledge exclusion and three of the insured entity's principals have pled guilty to various offenses, including violations of the securities laws. Murphy v. Allied World Assurance Co. (U.S.), Inc. (In re Refco, Inc.), No. 08-01133 (Bankr. S.D.N.Y. Apr. 21, 2008).
Do officers of a public corporation have an affirmative obligation to monitor corporate affairs? Yes, according to Judge Walsh in his recently issued memorandum opinion in Miller v. McDonald (In re World Health Alternatives, Inc.).1 Although "Caremark" oversight liability had previously generally only been imposed on directors of public corporations, the Bankruptcy Court for the District of Delaware determined that officers are not immune from such liability as a matter of law.
In Geygan v. World Savings Bank, FSB, 2008 FED App. 0005P (6th Cir. B.A.P. Mar. 12, 2008), the Sixth Circuit BAP affirmed the bankruptcy court, holding that the mortgage’s certificate of acknowledgment, which included the phrase “witness my hand” next to the notary’s signature, did not comply with Ohio law, and that the Trustee was a bona fide purchaser pursuant to the U.S. Bankruptcy Code.
The United States Supreme Court has denied a petition for certiorari in a case in which the U.S. Court of Appeals for the Ninth Circuit had articulated when a bankruptcy court should stay arbitration proceedings between non-debtor parties. In re Excel Innovations, Inc., 502 F.3d 1086, (9th Cir. 2007), cert. den., __ U.S. __ (Dkt. No. 07-963, April 28, 2008).
A recent bankruptcy court ruling is a reminder that bank accounts established for certain specific purposes may not be subject to general setoff rights.
Section 553 of the Bankruptcy Code preserves a creditor’s right of setoff under the Bankruptcy Code. To exercise this right, “mutuality” must exist—i.e., the debtor must owe an obligation to the creditor and the creditor a corresponding obligation to the debtor. Normally a straightforward analysis, determining whether mutuality is present becomes more difficult when there are more than two parties.
The current liquidity drought is pushing more businesses toward some form of financial reorganization. As the restructurings become more frequent, two different trends–one in bankruptcy and the other in private equity–will intersect. The result may surprise dealmakers searching the detritus for investment opportunities.
The “deepening insolvency” doctrine received another blow1 when a federal bankruptcy judge dismissed claims against the former directors and shareholders of a corporation for allegedly covering up massive fraud perpetuated by the business.
Courts faced with the task of unraveling the results of the recent credit crisis are being called upon to scrutinize lending agreements—many of which are complex and often previously uninterpreted. The review of these agreements is a reminder to signatory parties of the importance of fully understanding their obligations upfront.
The question, “Can we get them to agree not to file bankruptcy in the future?” must be near the top of the list of questions clients most commonly ask their transactions and workout lawyers.
Most lawyers fielding this question are likely to explain that such an agreement is not enforceable under bankruptcy law. Good lawyers then suggest that in certain situations, an agreement for the entry of an order lifting the automatic bankruptcy stay, or an agreement not to oppose a lift-stay motion if the other side files a bankruptcy petition, may be enforceable.
Adjustable rate mortgages began to reset just as the economic outlook for subprime borrowers soured. Defaults on subprime debt inevitably followed. The onslaught of litigation against all players in the subprime lending arena followed just as inevitably.