The Bankruptcy Court for the District of Massachusetts recently issued an opinion in In re SW Boston Hotel Venture, LLC1 in which it found, among other things, that the assignment of voting rights from a junior creditor to a senior creditor pursuant to an intercreditor agreement was unenforceable. The opinion was rendered in connection with the court’s decision to confirm the plan proposed by the debtor, the owner of the W Hotel in Boston.
Background
To promote equal treatment of creditors, the US Congress has armed debtors with the power to bring suit to recover a variety of pre-bankruptcy transfers. Prominent among these is a debtor’s ability under Section 548 of the Bankruptcy Code to recover constructively fraudulent transfers — i.e., transfers made without fair consideration when a debtor is insolvent.
In a recent decision that will be of interest to capital and structured finance market participants,1 a bankruptcy court in the Southern District of New York found that nonrecourse noteholders of a structured finance vehicle were not eligible petitioners under § 303(b) of the Bankruptcy Code and therefore could not commence an involuntary bankruptcy case.
The Bankruptcy Court for the Southern District of New York has held that a cross-affiliate netting provision in an ISDA swap agreement is unenforceable in bankruptcy. In the SIPA proceedings of Lehman Brothers Inc. (LBI), UBS AG (UBS) sought to offset UBS’s obligation to return excess collateral to LBI against claims purportedly owed by LBI to UBS subsidiaries, UBS Securities and UBS Financial Services.
To promote equal treatment of creditors, the US Congress has armed debtors with the power to bring suit to recover a variety of pre-bankruptcy transfers. Prominent among these is a debtor’s ability under Section 548 of the Bankruptcy Code to recover constructively fraudulent transfers — i.e., transfers made without fair consideration when a debtor is insolvent.
Intercreditor agreements--contracts that lay out the respective rights, obligations and priorities of different classes of creditors--play an increasingly important role in corporate finance in light of the continued prevalence of complex capital structures involving various levels of debt. When a company encounters financial difficulties, intercreditor agreements become all the more important, as competing classes of creditors seek to maximize their share of the company's limited assets.
The US Court of Appeals for the Second Circuit recently held that redemptions of commercial paper made through the Depositary Trust Company (DTC) are entitled to the “safe harbor” protections afforded to settlement payments under Bankruptcy Code Section 546(e), and are, therefore, not preferential transfers, even though such payments were made prior to maturity.1 The Second Circuit is the first Circuit Court of Appeal to address the issue, which arises out of the Enron bankruptcy case.
Legal Framework
In a decision that will be of great interest to the creditor community, the US Court of Appeals for the Second Circuit held, on November 5, 2009, that the Bankruptcy Code does not bar an unsecured claim for post-petition attorneys’ fees that was authorized under a valid prepetition contract. The case, Ogle v. Fidelity & Deposit Company of Maryland,1 extends and clarifies the US Supreme Court’s March 2007 decision in the Travelers case,2 which opened the door for such a ruling.
In its January 14, 2022 decision in In re Wolfson, the United States Bankruptcy Court for the District of Delaware discharged Chapter 7 debtor Ryan K.
On January 17, 2017, in a long-awaited decision in Marblegate Asset Management, LLC v. Education Management Finance Corp.,1 the US Court of Appeals for the Second Circuit held that Section 316 of the Trust Indenture Act ("TIA") does not prohibit an out of court restructuring of corporate bonds so long as an indenture's core payment terms are left intact.