A senior creditor can obtain significant leverage over a chapter 11 debtor if it is able to vote not only its claim but the claims of junior creditors in connection with the solicitation of a plan of reorganization. Obtaining such leverage, however, has proven problematic in the past. Among other things, courts have been reluctant to enforce pre-bankruptcy assignments or waivers of voting rights contained in intercreditor agreements, holding that such assignments or waivers may violate the Bankruptcy Code and rules. In Avondale Gateway Center Entitlement, LLC v.

Directors and officers of troubled companies are already keenly cognizant of their potential liability for any breaches of fiduciary duty, negligence and fraud.

On April 18, 2007, in Fla. Dep’t. of Rev. v. Piccadilly Cafeterias, Inc. (In re Piccadilly Cafeterias, Inc.),1 the United States Court of Appeals for the Eleventh Circuit held that the stamp tax exemption of 11 USC § 1146(c)2 may apply to transfers of assets that were necessary to the consummation of a bankruptcy plan of reorganization and were made prior to confirmation of the plan. In reaching this decision, the Eleventh Circuit declined to follow decisions of the Third and Fourth Circuits to the contrary and thus created a split among the circuits on this issue.

On August 2, 2010, Maru E. Johansen, in her capacity as the foreign representative (the “Foreign Representative”)1 in respect of Mexican insolvency proceedings regarding Compania Mexicana de Aviacion, S.A. de C.V. (“Mexicana”), filed a petition for recognition in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”), commencing a case under Chapter 15 of the United States Bankruptcy Code.2 Mexicana and its affiliates operate Mexicana Airlines, Mexico’s largest airline.

In response to the increasing complexity of cross-border restructurings and liquidations, a new chapter (Chapter 15) was added to the US Bankruptcy Code in 2005. Chapter 15 is meant to provide a framework for effectively and efficiently dealing with cross-border insolvency proceedings involving the United States by providing the representative of a foreign insolvency case with certain benefits and protections.

In a recent decision by the Bankruptcy Court for the Southern District of Texas, In re Scotia Development, LLC,1 Judge Richard S. Schmidt denied the motions of several creditors and the State of California seeking transfer of venue from the Southern District of Texas to the Northern District of California, finding that venue was proper in Texas and that California would not be a more convenient forum for the financial restructuring of the debtors.

Background

On June 2, 2010, the Third Circuit overruled longstanding precedent interpreting the definition of a “claim” under the Bankruptcy Code. In JELD-WEN, Inc. v. Van Brunt (In re Grossman’s Inc.), No. 09-1563, slip op., (3d Cir. June 2, 2010) an en banc panel rejected the state law accrual theory of claims recognition established in Avellino & Bienes v. M. Frenville Co. (Matter of M. Frenville Co.), 744 F.2d 332 (3d Cir. 1984), in favor of the more widely followed conduct test theory.

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 re Adelphia Communications Corp.,1 the United States Bankruptcy Court for the Southern District of New York recently held that neither a creditor’s aggressive litigation tactics resulting in the creditor’s prospective receipt under a proposed plan of special consideration for voting in favor of the plan, which special consideration other members of the same class that voted against the plan would not obtain, nor the creditor’s ownership of claims in several debtors, in a multi-debtor Chapter 11 case, was a sufficient basis for the “draconian sanction” of disallowing such creditor’s votes

Companies that plan to sell goods or services to a debtor in bankruptcy should be aware of a recent case decided by the Court of Appeals for the Eleventh Circuit, holding that a trustee may avoid a debtor’s post-petition transfers of cash collateral if such transfers were made without the consent of the secured party or court order.1