Last month we reported on the overwhelming victory of the Transeastern Lenders in their appeal of the decision by the United States Bankruptcy Court for the Southern District of Florida ordering them to disgorge almost $500 million in loan repayments, pre- and post-judgment interest and professional fees (“TOUSA I“1). That update can be found here.

BUSSON-SOKOLIK v. MILWAUKEE SCHOOL OF ENGINEERING (February 10, 2011)

Recently, several courts have added to the growing body of decisions construing intercreditor agreements in bankruptcy cases.

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.

The International Swaps and Derivatives Association, Inc. (“ISDA”) is preparing forms of amendment to its boilerplate master agreements in connection with market practice relating to the suspension of payments by a non-defaulting party. ISDA is also considering a protocol to implement the amendments into existing agreements on a multilateral basis.  

In a decision that may create serious problems for bankruptcy case administration, the Supreme Court this morning invalidated part of the Bankruptcy Court jurisdictional scheme. Stern v. Marshall, No. 10-179, 564 U.S. ___ (June 23, 2011). Specifically, the Court held that the Bankruptcy Courts cannot issue final judgments on garden variety state law claims that are asserted as counterclaims by the debtor or trustee against creditors who have filed proofs of claim in the bankruptcy case.

Can a waiver of rights ever be beneficial to the person granting the waiver?  Yes.  In In re Adamson Apparel, the Court of Appeals for the Ninth Circuit held, in a 2-1 

Recently, a bankruptcy court for the district of Puerto Rico held that a debtor’s waiver of the automatic stay contained in a pre-petition forbearance agreement was enforceable. In re Triple A & R Capital Inv., Inc., 519 B.R. 581 (Bankr. D.P.R. 2014).

The Bankruptcy Code dictates the priority of distributions to the holders of allowed secured and unsecured claims in accordance with various statutory priority schemes. However, the Bankruptcy Code also provides that consensual pre-bankruptcy agreements between or among creditors that prioritize the right to receive payments from an obligor will generally be enforced in a bankruptcy case subsequently filed by the obligor.

As a general rule, bankruptcy courts do not enforce provisions in organizational documents, loan agreements, or other prepetition contracts that purport to alter or waive the protections of the Bankruptcy Code. As with most rules, however, there are exceptions.