Two decades ago, the Supreme Court tackled the issue of whether a third party had submitted itself to jurisdiction of the bankruptcy court. In Granfinanciera, S.A. v. Nordberg,1 the Supreme Court ruled that a party who has not filed a claim against a bankrupt's estate is not subject to the jurisdiction of the bankruptcy courts. A year later, in Langenkamp v.

Part One of this article, published in the last edition of the Restructuring Review, examined recent developments in the gaming industry, focusing on strategies employed by gaming companies to increase liquidity and avoid insolvency. Part Two focuses on how potential buyers can use the bankruptcy process to purchase gaming facilities, free and clear of prior liens, and describes certain complications inherent in the acquisition of this type of asset.

Acquiring Gaming Facilities through Chapter 11

Sale Process

This week, Representative John Conyers introduced the “Helping Families Save Their Homes Act of 2009” (H.R. 1106) (the “Act”), which has been circulated in advance of a vote by the House of Representatives anticipated as early as today. Additional amendments have been offered to the bill, but it is unclear which, if any, will be incorporated into the final text. It is not expected that the Senate will consider its version of the bill until mid-March.

In COR Route 5 Co. v. Penn Traffic Co.1 (In re Penn Traffic Co), the United States Court of Appeals for the Second Circuit held that a non-debtor party to an executory contract may not, by fulfilling its contractual obligations post-petition, deprive the debtor of its ability to reject an executory contract.

The United States Bankruptcy Court for the Southern District of New York has held that a severance payment made to an executive who worked for both Enron Corp. (“Enron”) and various affiliates of Enron prior to Enron’s filing for bankruptcy was a preferential transfer that could be avoided by the Official Committee of Unsecured Creditors (the “Committee”).1 In reaching this conclusion, the Bankruptcy Court rejected the argument that the severance payment was an “ordinary course” transaction that was protected from avoidance.

On January 30, 2013, Judge Christopher Klein of the Bankruptcy Court for the Eastern District of California held that, pursuant to section 904 of the Bankruptcy Code, a municipal debtor is not required to seek court approval to enter into settlements with and make settlement payments to prepetition creditors during the pendency of its chapter 9 case. The decision demonstrates the broad scope of section 904 and the free reign that a municipal debtor enjoys under that section during the pendency of its chapter 9 case. In re City of Stockton, Cal., Case No. 12-32118 (Bankr. E.D. Cal.

On June 22, 2012, Judge Robert E. Gerber of the United States Bankruptcy Court for the Southern District of New York granted the U.S. Trustee’s motion to transfer the chapter 11 cases of Houghton Mifflin Harcourt Publishing Company and its affiliates to a different venue, notwithstanding the fact that the debtor’s prepackaged plan had been confirmed with unanimous support from its creditors, the cases were projected to conclude within 30 days of filing, and the debtors’ primary creditor constituencies supported venue in New York.

Earlier this year, the U.S. Court of Appeals for the Second Circuit held that a proposed “gifting” plan distributing value from the second lien lenders to the prepetition equity holder violated the absolute priority rule and was confirmed in error.2 This decision, by a 2-1 panel vote,3 reversed the decisions of the Bankruptcy and District Courts for the Southern District of New York. The Second Circuit also affirmed unanimously the designation of the vote of an indirect competitor of the debtor that held no claims prior to the petition date.

The Third Circuit Court of Appeals recently affirmed the District Court’s ruling in In re Philadelphia Newspapers, LLC.1 The Court allowed Philadelphia Newspapers, LLC to require all-cash bids for the asset sale under their proposed plan. This precluded secured creditors from credit bidding, as long as the plan provided those creditors with the “indubitable equivalent” of the value of their claims.

In a recent ruling from the bench, Judge James M. Peck of the United States Bankruptcy Court for the Southern District of New York held that Metavante Corporation’s suspension of payments under an outstanding swap agreement with Lehman Brothers Special Financing Inc.