According to a recent Delaware bankruptcy court decision, avoidance and disallowance risk travel with a distressed claim. This decision highlights the importance of diligence and the benefits provided by purchasing distressed debt on “distressed” documents.
The debt of a troubled company is trading in the secondary market at a significant discount because the company is highly levered and is at risk of default.
On April 19, 2012, the U.S. Bankruptcy Court for the Southern District of New York granted in part and denied in part JPMorgan Chase, N.A.’s motion to dismiss an adversary complaint filed by Lehman Brothers Holdings Inc. (“LBHI”) and its Official Committee of Unsecured Creditors. The Complaint seeks to recover approximately $8.6 billion in prepetition transfers made by LBHI to JPMorgan in the days leading up to LBHI’s bankruptcy.
Section 541(a) of the Bankruptcy Code creates a worldwide estate comprising all of the legal or equitable interests of the debtor, “wherever located,” held by the debtor as of the filing date.1 The Bankruptcy Code’s automatic stay, in turn, applies “to all entities” and protects the debtor’s property and the bankruptcy court’s jurisdiction by barring “any act to obtain possession of property of the estate . . .
A recent opinion from the United States Bankruptcy Court for the Western District of New York shows that even the best laid strategies can return to haunt the insiders of a debtor. In Wallach v.
Asbestos settlement trusts are a major source of payment of asbestos claims in the United States, with over fifty such trusts instituted as of March, 2011.1 While insurance recoveries are a principal source of funding for these trusts, courts generally have not allowed insurers to challenge chapter 11 plans where they are found to be “insurance neutral.” A plan is insurance neutral where the plan does not increase an insurer’s pre-petition liabilities or impair an insurer’s contractual rights under its insurance policies.
Whether post-death creditor protection is available to inherited IRAs under the 2005 Bankruptcy Act has been the subject of a number of cases decided in the last several years. The argument made by bankruptcy trustees is that, on the death of the IRA owner, the IRA ceases to be “retirement funds” as it is not the retirement funds of the beneficiary. Consequently, the bankruptcy trustees argue that the inherited IRA ceases to have the protection afforded to IRAs under the Bankruptcy Code.
Bankruptcy cases can be expensive affairs not only for the debtor, but also for creditors trying to obtain payment on their claims. A Bankruptcy Court in the Middle District of Florida recently approved a provision in a chapter 11 plan allowing for certain unsecured creditors to be reimbursed for their legal fees if their participation in the case helped maximize recoveries for other creditors, even though the Bankruptcy Code does not explicitly allow for this kind of reimbursement.
AFA Investment Inc., and its affiliates, including AFA Foods, American Foodservice Corporation, United Food Group, LLC, and American Fresh Foods (together “AFA”) have requested that the Bankruptcy Court overseeing their Chapter 11 cases approve procedures for a sale of all of their assets. The sale process was a condition required by AFA’s lenders to continue financing the companies in bankruptcy.
In a ruling on February 29, 2012, the U.S. Bankruptcy Court for the Central District of Illinois allowed a bankruptcy trustee to avoid an Illinois mortgage as to other creditors of the estate because the mortgage failed to expressly state the maturity date of and interest rate on the underlying debt (In Re Crane, Case 11-90592, U.S. Dist Ct, C.D. IL, February 29, 2012).
The United States Bankruptcy Court for the Central District of Illinois recently held that an Illinois mortgage is subject to avoidance in bankruptcy pursuant to 11 U.S.C. § 544(a)(3) unless the mortgage contains among other things, (i) the amount of the debt, (ii) the maturity date of the debt, and (iii) the underlying interest rate. Richardson v. The Gifford State Bank (In re Crane), Adv. Pro. No. 11-9067 (Bankr. C.D. Ill.).