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).

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.

The United States Bankruptcy Court for the District of Delaware (the “Court”) recently upheld a $23.7 million make-whole payment (the “Make-Whole Payment”) in In re School Specialty (Case No. 13-10125), denying the assertion by the Official Committee of Unsecured Creditors (the “Committee”) that the fee is unenforceable under the United States Bankruptcy Code and applicable state law.

In re Maharaj, 681 F.3d 558 (4th Cir. 2012)

CASE SNAPSHOT

The Court of Appeals for the Fourth Circuit is the first court of appeals to determine whether the absolute priority rule continues to apply to individual chapter 11 debtors. Taking the "narrow view" adopted by certain courts, the Fourth Circuit held that the rule was not abrogated by the amendments of the Bankruptcy Abuse Prevention and Consumer Protection Act, and therefore affirmed the bankruptcy court’s order denying confirmation of the proposed plan.

Irving Picard, the trustee appointed under the Securities Investor Protection Act (the “Trustee”), 15 U.S.C. § 78aaa et seq. (“SIPA”), to administer the estate of Bernard L. Madoff Investment Securities, LLC, has brought hundreds of actions seeking to avoid transfers that were purportedly fraudulent or preferential (the “Avoidance Actions”). Some of the Avoidance Action defendants sought to withdraw the reference to the Bankruptcy Court, basing their motions on the Supreme Court’s decision in Stern v. Marshall, 131 S. Ct. 2594 (2011).

In re Georges Marciano, No. 11-60070 (9th Cir., Feb. 27, 2013)

CASE SNAPSHOT

Judgment creditors of Georges Marciano filed an involuntary chapter 11 petition against Marciano, who appealed the state judgments before the petition was filed. The Ninth Circuit ruled, in a case of first impression, that unstayed state court judgments on appeal were not "the subject of a bona fide dispute," and thus the Bankruptcy Court did not err when it entered an order for relief under chapter 11 against Marciano, notwithstanding the pending appeals.