The South Bay Law Firm Law Blog highlights developing trends in bankruptcy law and practice. Our aim is to provide general commentary on this evolving practice specialty.
 





 
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      Insolvency News and Analysis - Week Ending November 21, 2014
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    Insolvency News and Analysis – Week Ending September 5, 2014

    September 5th, 2014
    Delaware license plate from personal collection

    Delaware license plate from personal collection (Photo credit: Wikipedia)

     

     

     

     

     

     

     

    Trends

    [Bankruptcy Filings and] High Yield Debt

    Bankruptcies down in Delaware, US

    Corporate Governance

    LLC Managers Beware: Get Involved With Member Distributions By an Insolvent LLC and You May Be Personally Liable

    Financial Markets

    Rolling Back the Repo Safe Harbors

    Sales

    Eleventh Circuit Directs Bankruptcy Court to Vacate Sale Order Based on New Evidence that Involuntary Bankruptcy Case Was  Filed In Bad Faith

    Secured Claims

    The (Il)Legitimacy of Bankruptcies for the Benefit of Secured Creditors

    Avoidance and Recovery

    Caveat Debtor: Liens Preserved Pursuant to Section 551 Subject to Defects Under State Law

    The Uniform Voidable Transactions Act – New Section 11 and Series LLCs

    Fraudulent Transfer: A Case Where Strong Arm Powers Were “An Inch Too Short”

    Fifth Circuit Provides Valuable Guidance on Jurisdiction and Authority Post-Stern

    Confirmation

    S.D.N.Y. Bankruptcy Court Denies Claim for Make-Whole Premium and Allows Cram Down of Debtors’ Chapter 11 Plan Paying Secured Creditors Below-Market Interest Rates on Replacement Notes

     

    Bankruptcy Court Holds That Secured Creditors Can Be “Crammed Down” With Below-Market Rate Replacement Notes

    The Fourth Circuit Weighs in on Third-Party Releases in Plans of Reorganization

    Analysis Regarding Third-Party Releases in Bankruptcy

    Third Circuit Rules that Failure to Disclose Third-Party Release Proves Fatal

    Cross-Border

    Significant Changes To [Vietnamese] Bankruptcy Procedures

     

     

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    Insolvency News and Analysis – Week Ending August 29, 2014

    August 29th, 2014

     

    Seal of the United States Court of Appeals for...

    Seal of the United States Court of Appeals for the Second Circuit. (Photo credit: Wikipedia)

     

     

     

     

     

     

     

     

     

     

     

     

     

    Procedure

    What’s the Difference Between a Contested Matter and an Adversary Proceeding Anyway?

    Avoidance and Recovery

    Section 548(e) Authorizes Avoidance and Recovery of Transfer of Living Trust Assets

    Void and Voidable – A Distinction Without a Difference?

    SIPC v. Madoff Investment Securities LLC: Fraudulent Transfers between Foreign Parties Not Recoverable under Section 550(a)(2)

    Sales

    To (Credit) Bid Or Not To (Credit) Bid, That Is The Question

    Claims

    Failure to Provide a Translation Does not Translate to Victory

    Post-Petition Interest: Not Very Predictable

    Tax

    Be Careful What You Plan For in California: Bankruptcy Reorg Is Normal Course of Business

    Second Circuit’s Significant Decision Could Impact Liquidating Trustees

    Practice Pointers from the Second Circuit: A Prohibited Power Grab Can Be “Taxing”

     

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    Bankruptcy and Insolvency News and Analysis – Week Ending August 22, 2014

    August 22nd, 2014
    English: Charles Simms, March 17, 1796, Fire I...

    English: Charles Simms, March 17, 1796, Fire Insurance Policy (Photo credit: Wikipedia)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Practice and Procedure

    PROPOSED [BANKRUPTCY RULE] AMENDMENTS PUBLISHED FOR PUBLIC COMMENT

    DEALING WITH DIFFICULT DEBTORS

    Corporate Governance

    How Remote is Bankruptcy Remote? Is an Operating Agreement Restriction Against a Bankruptcy Filing Without the Unanimous Consent of All Members Enforceable?

    Let’s Call the Whole Thing Off: What Happens if the Bankruptcy Code Says Yes, But the Debtor’s Governance Documents Say No?

    Sales

    In re Ormet Corp: Delaware Bankruptcy Court Holds Section 363(f) Bars ERISA Successor Liability Claims

    Avoidance Actions and Other Recoveries

    Mind Your Ds and Os: Policy Language Proves Determinative in Director and Officer Insurance Coverage

    Klein v. King & King & Jones: Tenth Circuit Clarifies UFTA’s Good Faith and Subsequent Transferee Defenses

    Plan Confirmation Issues

    Fourth Circuit Issues Reminder to Plan Proponents: Evidentiary Support is Required for Non-Debtor Releases

     

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    Insolvency News and Analysis – Week Ending August 15, 2014

    August 15th, 2014
    (en) World Map (pt) Mapa Mundo (de) Weltkarte ...

    (en) World Map (pt) Mapa Mundo (de) Weltkarte (sv) Världskarta (Photo credit: Wikipedia)

     

     

     

     

     

     

     

     

     

     

     

    Statutory Construction

    Our “Must-Cite” Bankruptcy Cases

    Jurisdiction

    Still Trying To Close The Stern V. Marshall Can Of Worms

    The Ninth Circuit Waits for No One

    Cross-Border

    A Bird’s-Eye View of Chapter 15

    Chapter 15 Comes of Age

    Managing parallel proceedings – USA & Cayman Islands

    Sales

    Bankruptcy Sales and Leases: “Free And Clear” May Not Be So “Free And Clear”

    Sale of Assets Free and Clear Insulates Employee Claims Against Purchaser . . . Almost

    Section 363(f) Retires ERISA-Based Successor Liability Claims

    Avoidance and Recovery

    Trust Beneficiary Checkmated By Bankruptcy Code 548(e) In Castellano

    Property of the Estate

    Peering Through the Muck Again: Another Court Analyzes Whether LLC Operating Agreements are Property Interests or Executory Contracts

     

    Related Articles

     

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    Paid in Full

    August 10th, 2014
    American National Bank AD

    American National Bank AD (Photo credit: Wikipedia)

    One of the fundamental functions of any bankruptcy proceeding is the establishment of an amount and priority for each creditor’s claim against the debtor. A short, 5-page decision issued late last month by the Nebraska Bankruptcy Court in two related Chapter 11 cases (Biovance and Julien) serves as a reminder that although creditors are not permitted a “double recovery” on their claims, they are nevertheless permitted to assert the full value of their claims until those claims are paid in full.

     
    In the US, it is common for creditors to mitigate credit risk through two primary means: Taking a security interest in the debtor’s collateral, and/or securing a guaranty of payment from a [non-debtor] third party. Further, and in the event of a payment default, courts frequently recognize a creditor’s right to pursue simultaneous collection activity for the entirety of the debt against the debtor, the collateral, and the guarantor. In a recent decision involving two related Chapter 11 debtors, a Nebraska Bankruptcy Court was asked by the debtors to limit the amounts claimed by a creditor as the creditor had already received a portion of the payments owed to it.

     
    In this case, a business debtor (Biovance) had leased equipment from American National Bank (ANB), collateralizing one of the leases with a certificate of deposit held by that debtor.  The other lease was protected by a guarantee issued by the individual debtor (Julien) to ANB.  ANB had obtained permission to collect its collateral with respect to the first lease, and to liquidate its claims in Nebraska state court with respect to the second (which claims were subsequently settled).  The debtors argued, among other things, that as the confirmed bankruptcy plan provided for payment in full of all claims, the creditor was therefore obligated to immediately credit the amounts it had received.  ANB argued that a proof of claim filed under 11 U.S.C. § 502 need not be reduced by amounts recovered from a third party unless it stood the chance of a double recovery.

     
    The Bankruptcy Court of Nebraska agreed with ANB, noting that the confirmed plan is neither a recovery nor payment in full. It is only a promise to pay. The Court went on to hold that until such time as ANB had actually received its payment in full, it was entitled to assert the balance due against all concerned parties – including the debtors.

     
    Establishing the amount and priority for each creditor’s claim against the debtor fixes the limit of recoveries available to a creditor from the debtor’s estate. Such claims are, in the aggregate, an important factor in the creditors’ assessment of the feasibility of a debtor’s proposed reorganization – and in determining whether liquidation offers them a preferable recovery.

     
    The Biovance decision, though not surprising, nevertheless reminds creditors and their counsel to preserve all of the value of their claims, even if paid partially, until the claims are paid in full.

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    Insolvency News and Analysis – Week Ending August 1, 2014

    August 1st, 2014
    Money 2014 ...item 3d.. State worker ordered t...

    Insolvency News and Analysis . . . and More

     

     

     

     

     

     

     

     

     

     

     

    Trends

    Highlights From 2014 (and Beyond)

    Disposition Firms Maximize Value by Leaving No Stone Unturned

    Mid-Year Chapter 11 Bankruptcy Update: From One Extreme To The Other

    Litigation

    A Dispute Over a Dispute: Recent Bankruptcy Court Decision Dismisses Involuntary Chapter 7 Petition Due to Bona Fide Disputes

    Claims, Creditors, and the Bankruptcy Estate

    A Spoonful of Sugar Helps the [UCC] Remedy Go Down: Recognition of Stoppage Rights in the Early Years of the Bankruptcy Code

    Decisions Do Not Apply “Jewel Doctrine” to Departed Partners’ Fees

    Avoidance and Recovery

    The Uniform Voidable Transactions Act – What’s With The Name Change?

    Strong Arm Powers: For Want of An “S” the Mortgage Was Lost

    Professional Lines Alert – Non-Fiduciary Held Liable for Aiding and Abetting Breach of Fiduciary Duty

    Not Fraudulent, Voidable

    Valuation

    In re Brown: Replacement Value Applies Even  When Debtor Surrenders Property

    Sales

    RECENT CHALLENGES TO CREDIT BIDDING—A NEW TREND?

    Sale “Free and Clear”: Adequate Protection of Nothing is Nothing

    Plan Confirmation

    Fourth Circuit Invalidates Third-Party Release Provision in Chapter 11 Plan

    CWCapital Asset Mgmt v. Burcam Capital II: Court Thwarts Debtor’s “Obvious Gerrymandering” to Obtain Plan Confirmation

    Release Me! Release Me!: S.D.N.Y Bankruptcy Court Upholds Certain Non-Consensual Non-Debtor Releases Granted by Unimpaired Creditors and Equity Holders

    Claims

    Make-Whole Provisions Continue to Cause Controversy: What You Can Do to Avoid Litigation

    Eleventh Circuit Extends FDCPA to the Filing of Bankruptcy Proofs of Claim

    Delaware Court Enforces Subordination Agreements Despite Senior Indenture Trustee’s Late Filing of Senior Claims

    The Interplay between Section 502(d) of the Bankruptcy Code and SIPA’s Requirement of “Prompt” Return of Customer Funds

    Related Articles

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    Insolvency News and Analysis – July 18, 2014

    July 18th, 2014
    The bitcoin logo

    The bitcoin logo (Photo credit: Wikipedia)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Secured Claims

    In re 804 Congress: Fifth Circuit Affirms Section 506(b) Reasonableness Standard Applies to Oversecured Lender’s Legal Fees in Non-judicial Foreclosure Sale

    Environmental Claims

    The Pain that Comes along with Walking a Mile in Your Own Shoes … Circuits Refuse to Allow Reorganized Debtors to “Step in the Shoes” of Debtors in Possession as Subrogees

    Cross-Border

    American Exceptionalism and Extraterritorial Application of Bankruptcy Law

    What’s up in Australian insolvency law, and why should we care?

    Assets

    Bitcoin and Bankruptcy

    Could a Bitcoin Exchange Constitute a “Stockbroker”?

    Avoidance and Recovery

    The Collapse of Financial Fraud: Measuring Bankruptcy Avoidance Actions

    Confirmation

    Lender Beware: Ensure Plan Releases are Limited to Debtor’s Obligations

    Legislation

    HEARING: H.R. ____, THE “FINANCIAL INSTITUTION BANKRUPTCY ACT OF 2014

    GOP Lawmakers Seek to Amend Bankruptcy Rules for Big Bank Collapses

    Jurisdiction

    In Search of the Probate Exception

    Procedure

    Alarming Changes to Procedural Rules Proposed

    Related Articles

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    Insolvency News and Analysis – July 11, 2014

    July 11th, 2014

     

    Emblem of Hong Kong

    Emblem of Hong Kong (Photo credit: Wikipedia)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Trends

    Commercial Bankruptcy Filings Drop 22% for the First Half of 2014

    Secured Claims

    Small Formalities, Big Consequences in Secured Credit Law – An Update

    Cross-Border

    DLA Global Insight

    In re Octaviar: Minimal US Property Satisfies Chapter 15 Foreign Debtor Eligibility Requirements Imposed by Second Circuit

    Kazakhstan’s New Rehabilitation and Bankruptcy Law

    Chapter 11 again mooted as an option for Australia’s insolvency regime

    Workers’ rights key for legislators in weighing up Hong Kong bankruptcy bill

    Sales

    Rights of First Refusal in Bankruptcy Sales – Bankruptcy Court Finds Provision in Operating Agreement Unenforceable

    Avoidance and Other Recovery Sources

    Court Holds Professional Liability Insurance Covers Restitutionary Settlement

    Leases and Executory Contracts

    Leases and Executory Contracts in Chapter 11

    More:

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    Insolvency News and Analysis – Week Ending July 3, 2014

    July 1st, 2014

     

    Map of the geographic boundaries of the variou...

    Map of the geographic boundaries of the various United States Courts of Appeals and United States District Courts. (Photo credit: Wikipedia)

     

     

     

     

     

     

     

     

     

     

     

    Reclamation Rights

    What Constitutes “Goods” Under Bankruptcy Section 503(b)(9)?

    Manufacturer’s Corner: When Bankruptcy and Your Shipping Terms Collide

    Litigation and Avoidance Actions

    Court Pierces the Corporate Veil and Tells Designer Knock-Off to Knock It Off

    Side-Stepping Exposure to Bankruptcy Litigation: Fraudulent Transfers and Centralized Cash Management Systems

    Sales

    Two New Cases Cast a Shadow Over Credit Bidding

    Financing

    Tortious Interference Claims: Something To Keep In Mind

    Cross-Border

    Foreign Debtor Eligibility for Chapter 15: The Second Circuit’s Gateway Requirements May Not Limit Access After All

    Other Stories

     

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    The Little Things

    June 27th, 2014

    O to grace how great a debtor, daily I'm const...

    In the confirmation of a Chapter 11 plan – as in life – it is often the little things that count.

    Late last month, a Houston Bankruptcy Court provided helpful guidance on a very seldom-discussed, and often-overlooked, confirmation issue:  Whether the reorganized debtor’s management make-up and structure is consistent with “public policy.”  A copy of that decision is available here.

    Barring an outright sale of assets, the confirmation of a plan of reorganization is typically the centerpiece of any Chapter 11 case.  Chapter 11’s confirmation provisions – set forth in section 1129 – impose a broad variety of requirements on the debtor, all of which must be met or legitimately excused under recognized exceptions.  Though many of these requirements have been extensively litigated and discussed by Bankruptcy Courts, several – including those pertaining to the governance and ownership structure of the reorganized debtor – have not enjoyed nearly as much review or discussion.  Before the Bankruptcy Court in In re Digerati Technologies, Inc. was the issue of whether the debtor’s proposed management structure was appropriate in light of the Code’s requirement that post-confirmation management be appointed on terms “consistent . . . with public policy” under § 1129(a)(5)(A)(ii).

    Digerati Technologies filed a Chapter 11 bankruptcy petition in May 2013.  The plan submitted by Digerati proposed that the CEO and CFO of the company, who were also stockholders and creditors of Digerati, continue as the officers and directors of the reorganized debtor entity, positions which they had occupied within the two years prior to Digerati’s Chapter 11.  Digerati was a publicly-traded holding company for an operational subsidiary.  Thus, the plan’s proposed ongoing “officer and director” capacity also left Digerati’s CEO and CFO effectively in control of Digerati’s subsidiary.

    Two Digerati stockholders objected to the plan on the grounds that Digerati’s pre-petition self-dealing established that continuation of Digerati’s pre-petition management was “not in the best interest of the estate, the creditors, the equity security holders and fail[ed] to satisfy public policy.”  On the basis of the evidence adduced at the confirmation hearing, the Bankruptcy Court denied confirmation of Digerati’s plan for its inability to satisfy the requirements of section 1129(a)(5)(A)(ii).  In the process, the Court formulated a nine-point checklist of essential factors relevant to determining whether appointment of an individual to serve as an officer of a reorganized debtor is consistent with public policy:

    (1) Does the proposed plan, if confirmed, keep the debtor in existence as an ongoing company, or is the debtor extinguished?

    (2) Is the debtor a publicly- or privately-held company?

    (3) Does continued service of the individual(s) proposed for officers and directors perpetuate incompetence, lack of direction, inexperience, or affiliations with groups inimical to the best interests of the debtor?

    (4) Does the continued service of the proposed individual(s) provide adequate representation of all creditors and equity security owners?

    (5) Does the retention of the proposed individual(s) violate state law in any respect?

    (6) Is each proposed individual a “disinterested person”?

    (7) Is each proposed individual capable and competent to serve in the proposed capacity assigned to him or her?

    (8) Are the salaries and benefits that the proposed individual(s) will receive reasonable based upon the size of the debtor’s operations, the complexity of these operations, and the revenues to be generated?

    (9) Are there any new independent outside directors being appointed under the proposed plan?

    Digerati Technologies‘ review of applicable case law further highlights the following:

    - Such little case law as exists on section 1129(a)(5)(A)(ii) suggests that a consistent focus is on whether management and the board of directors is “disinterested.”  Here, Digerati’s management was not.

    - At least one decision reviewed by the Bankruptcy Court suggests that, where present management will continue, management’s track record is relevant:  Though Bankruptcy Courts are often reluctant to “second-guess” a debtor’s management, they will not reward or perpetuate incompetence and gross mismanagement where it clearly exists.

    - Still another decision reviewed by the Bankruptcy Court focused on management’s level of compensation, relative to its experience and the demands of managing the debtor.

    - Finally, the Bankruptcy Court’s helpful list of summarized factors, digested from all of the decisions, offers practitioners a useful “road map” to consider in drafting a Chapter 11 plan.

    The Digerati decision serves as a reminder that all of Chapter 11’s requirements, no matter how seemingly arcane, must be met prior to a plan’s confirmation.  In hotly-contested matters, these requirements can often be a source of contention and – on occasion – tactical advantage.  In addition to this important reminder, Digerati offers both debtors’ and creditors’ counsel a helpful checklist for assessing their relative positions on the question of the debtor’s proposed corporate governance.

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