On May 14, 2012, the United States Court of Appeals for the Third Circuit upheld a ruling by the Bankruptcy Court for the District of New Jersey that the fair market value of a creditor’s collateral as of the plan’s confirmation date is the proper method of valuing a secured creditor’s claim pursuant to section 506(a) of the Bankruptcy Code.  The Third Circuit also adopted a “burden-shifting framework,” finding that a secured creditor will bear the ultimate burden of proving the extent to which its claims are secured pursuant to section 506(a).

Background

In the W.R. Grace bankruptcy, the United States Court of Appeals for the Third Circuit recently reaffirmed its prior rulings on the controversial issue of a bankruptcy court’s power to enjoin actions by third parties against non-debtors.1 Resting on prior precedent, the Third Circuit held that bankruptcy courts lack subject matter jurisdiction to enjoin third party actions that have no direct effect upon the bankruptcy estate.

Introduction

Several recent bankruptcy decisions rendered in the Third Circuit address whether the disclosure requirements of Rule 2019 of the Federal Rules of Bankruptcy Procedure apply to informal or “ad hoc” committees.1 Although these courts base their reasoning on the “plain meaning” of Rule 2019, their ultimate holdings are inconsistent and have generated renewed interest in this topic among lenders and the investing community. This article provides a brief summary of these recent decisions and examines their inconsistencies.

Introduction

On March 30, 2009, the United States Supreme Court heard oral argument in Travelers Indemnity Co. v. Bailey,1 a case that addresses the jurisdiction of bankruptcy courts to authorize third-party releases in the context of a debtor’s plan of reorganization.

In Henderson v. Powermate Holding Corp. (In re Powermate Holding Corp.)1, the United States Bankruptcy Court for the District of Delaware became the second bankruptcy court to address the status of WARN Act claims after the 2005 amendments to section 503 of the Bankruptcy Code.

In a May 23, 2008 decision, the United States Bankruptcy Court for the District of Delaware ruled that BBB-rated mortgage-backed notes are eligible for the Bankruptcy Code's repurchase agreement safe harbor as “interests in mortgage loans”. The court also held that a repurchase agreement constituted a sale, as opposed to a financing governed by UCC Article 9 -- the first decision on this topic since the financial contract safe harbors were expanded under the 2005 amendments to the Bankruptcy Code.

In Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,1 the United States Bankruptcy Court for the Southern District of New York refused to allow the foreign representatives of two Bear Stearns funds2 to institute ancillary proceedings under new chapter 15 of the United States Bankruptcy Code. There, Judge Lifland held that, even though the Funds were in liquidation proceedings in the Cayman Islands, those proceedings constituted neither “foreign main” nor “foreign non-main” proceedings for purposes of the U.S.

The United States Court of Appeals for the Third Circuit recently reiterated its position that the doctrine of equitable mootness should only apply if granting relief on appeal would undermine a consummated bankruptcy plan. In In re Philadelphia Newspapers, LLC, the Third Circuit held that the United States District Court for the Eastern District of Pennsylvania abused its discretion when summarily finding that the appeal at issue was equitably moot simply because the appellants failed to seek a stay and the debtors’ plan had been substantially consummated.

On May 15, 2012, the Eleventh Circuit Court of Appeals upheld a ruling by the U.S. Bankruptcy Court for the Southern District of Florida, which required certain lenders to return $403 million in prepetition payments they had received from TOUSA, Inc.