In a much anticipated opinion,In re TOUSA, Inc., --- F.3d ----, 2012 WL 1673910 (11th Cir. May 15, 2012), the Eleventh Circuit Court of Appeals has resolved a disagreement between the Bankruptcy Court and District Court for the Southern District of Florida by upholding the Bankruptcy Court’s findings—to the chagrin of lenders, who are now arguably exposed to new liabilities and higher standards of due diligence.

It is very common for bankruptcy court orders to provide that the court retains jurisdiction to enforce such orders. Similarly, chapter 11 confirmation orders routinely provide that the bankruptcy court retains jurisdiction over all orders previously entered in the case. The enforceability of these “retention of jurisdiction” provisions, however, will not rest on the plain language in the order but on the bankruptcy court’s statutory jurisdiction.

Clients often raise questions concerning the enforceability of arbitration clauses in bankruptcy proceedings. While this topic has been hotly debated for many years, a recent Ninth Circuit opinion, In re Thorpe Insulation Co., 671 F.3d 1011 (9th Cir. 2012), reminds us that arbitration clauses are not sacrosanct and can be struck down by the court.

As noted in a recent Distressing Matters post, the United States Supreme Court in In re Jevic Holding Corp. held that debtors cannot use structured dismissals to make payments to creditors in violation of ordinary bankruptcy distribution priority rules.

In a significant expansion of the potential risk for distressed claims traders, the Delaware bankruptcy court has recently ruled¹ that traders who engage in insider trading may have their claims subordinated to equity, and that traders who amass claims sufficient to block a plan of reorganization owe fiduciary duties to all other creditors and shareholders during plan negotiations.

The filing of a bankruptcy case puts in place an automatic injunction, or stay, that halts most actions by creditors against a debtor. But can a creditor violate the automatic stay by not acting? The Tenth Circuit recently addressed the issue in WD Equipment, LLC v. Cowen (In re Cowen), adding to the split of authority on the issue.

The bankruptcy court ruled today that the City of Harrisburg’s Chapter 9 petition filed by the Harrisburg City Council was not specifically authorized under Pennsylvania law.  After extensive briefing from the parties concerning, among other things, the constitutionality of Act 26 – the law passed in June 2011 to prohibit “third class” cities like Harrisburg from filing Chapter 9 -- the court ruled the law was constitutional and prohibited Harrisburg from becoming a Chapter 9 debtor.  The case has been dismissed.

In Nortel Networks, Inc., Case No. 09-0138(KG), Doc. No. 18001 (March 8, 2017), the Delaware Bankruptcy Court ruled on the objections of two noteholders who asked the Court to disallow more than $4.4 million of the $8.1 million of the fees sought by counsel to their indenture trustee. Given the detailed rulings announced by the Court, the decision may establish a number of guidelines by which future fee requests made by an indenture trustee’s professionals will be measured.

Matters Handled by the UCC

As expected the Harrisburg City Council has filed a reply to the numerous objections to the Chapter 9 filing of Harrisburg initiated by the City Council.  The City Council’s brief (harrisburg response.pdf) appears to be the only timely filed reply to the objections to the Chapter 9 filing. 

One of the most powerful and oft used devices in bankruptcy is the sale of assets “free and clear” of liens, claims and interests. One issue a buyer at a bankruptcy sale must consider, however, is whether due process has been met with respect to parties whose liens, claims and/or interests are released through such sale. Indeed, a lack of due process could foil a “free and clear” sale, leaving a buyer with an encumbered purchase and nowhere to turn for recourse.