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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      Bankruptcy and Insolvency News and Analysis Week Ending September 23, 2016
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    Bankruptcy and Insolvency News and Analysis Week Ending September 16, 2016
    Bankruptcy and Insolvency News and Analysis Week Ending September 9, 2016
       

    Posts Tagged ‘United States Court of Appeals for the Ninth Circuit’

    Bankruptcy and Insolvency News and Analysis – Week Ending August 5, 2016

    Friday, August 5th, 2016

    golden-gears-7866086

    Trends

    30 companies that might disappear in 2017

    Current Developments

    An Overview of the Ninth Circuit Bankruptcy Appellate Panel and its Reviewed Decisions During 2015

    Claims

    Is “Allowance” of a Claim Binding in the Next Case? Bankruptcy or Otherwise?

    Get to the Back of the Line! Delaware Bankruptcy Court Holds C-Suite Stock Compensation was Equity Security Not General Unsecured Claim

    Avoidance and Recovery

    Fraudulent Transfer Defeats Tenancy By The Entireties Protection Of Sarasota Home In Major

    Bankruptcy court failed to impute CEO’s intent to Lyondell

    Section 303(a) Precludes Substantive Consolidation Among Religious Institutions

    In Conflict With Other Circuits, Seventh Circuit Rules That Certain Transfers Involving Financial Institution Intermediaries Not Immune From Recovery By Bankruptcy Trustee

    Preference May Be Offset by an Unpaid Administrative Claim, Judge Carey Rules

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    Bankruptcy and Insolvency News and Analysis – Week Ending July 1, 2016

    Monday, July 4th, 2016

    4th of July

    Happy Birthday, America!

    Trends

    Single-Asset Real Estate Filings Inched Up in Q1 2016

    Case Commencement

    Structural Limitations on Bankruptcy Filings—Blocking Tactics on the Block

    Avoidance and Recovery

    Your Customer Just Declared Bankruptcy: Recent Decision That All Suppliers/Vendors Should Be Aware Of

    Safe Harbor Defense Bars Creditors’ State Law Fraudulent Transfer Claims

    Alternative Dispute Resolution

    Preparing for Multiparty Mediation: A Checklist — Part Two, Items 1 – 5

    Confirmation

    SPLIT NINTH CIRCUIT NARROWS DEFINITION OF BAD FAITH INSIDER IN CRAMDOWN CASE

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    Bankruptcy and Insolvency News and Analysis – Week Ending June 3, 2016

    Friday, June 3rd, 2016

    Stock Charts

    Trends

    Total Commercial Bankruptcy Filings Increase 32 Percent in May

    Case Commencement

    Blocking Member Provision in LLC Agreement Designed to Prevent Bankruptcy Filing Unenforceable

    Claims and Vendors

    When Vendors Are Consigned to a Lower Authority

    Impact of Critical Vendor Payments — More Critical Than Ever

    Executory Contracts

    First Impressions: Third Circuit Rules That a Terminated Collective Bargaining Agreement May Be Rejected Under Section 1113

    Valuation

    Finance And Law: The Pros And Cons Of Monte Carlo Simulations In Valuation

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    Bankruptcy and Insolvency News and Analysis – Week Ending May 27, 2016

    Monday, May 30th, 2016

    1893 Panic

    Trends

    Corporate Bankruptcy Panel—ABI Commission’s Report on the Reform of Chapter 11: Small and Medium Businesses, Sales of Assets, Financing, and Plans

    Restructuring

    When It’s Time to Hire a Chief Restructuring Officer

    Estate Property

    Assets Held by Charitable Organizations Are Safe From Claims of Creditors in Bankruptcy Cases . . . Or Are They?

    Debtor’s Life Insurance Policy Belongs to Bankruptcy Estate

    Secured Claims

    Ninth Circuit Bankruptcy Appellate Panel Holds that an Oversecured Creditor Is Entitled to Default Interest After the Petition Date and Before Plan Confirmation

    Discharge

    Not So Fast – Supreme Court Holds Prepetition Fraudulent Transfer Precludes Post-Petition Discharge in Husky International

    Cross-Border

    Why Two Facets of Chapter 15 Rulings Hinder Cross-Border Insolvency Petitions in the United States

     

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    Bankruptcy and Insolvency News and Analysis – Week Ending April 22, 2016

    Friday, April 22nd, 2016

    money_3

    Trends

    Triple negative – making sense of the current wave of corporate restructurings

    Task Force Studying Individual Chapter 11 Filings

    Workouts and Restructuring

    Please Buckle Your Seatbelts and Check Your D&O Insurance: A Gloomy Forecast Is Ahead

    Bankruptcy Court Chips Away at Bankruptcy Remoteness of Special Purpose Vehicles

    Executory Contracts

    Late Is Never Better! Timeline to Protect Your Contract in a Market Downturn

    Claims and Creditors

    “When Worlds Collide: Article 2 of The Uniform Commercial Code and Chapter 11”

    Avoidance and Recovery

    Second Circuit Limits Creditors’ Ability to Claw Back LBO Payments

    Seventh Circuit Finds Tax Sale Avoidable

    Sales

    Third Circuit Permits Purchaser in Section 363 Sale to Make Payments to Interested Parties, Deviating from Bankruptcy Code Priority Scheme

    Confirmation

    Ninth Circuit Rulings on Equitable Mootness in Transwest and Sunnyslope Impact Third Party Investors

    Improper Calculation of Postpetition Interest Leads to Reversal of a Confirmation Order

     

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    Bankruptcy and Insolvency News and Analysis – Week Ending April 1, 2016

    Thursday, March 31st, 2016

    Financial-Management-and-Accounting-300x300

    Trends

    The Next Perfect Banking Storm

    Estate Property

    When Vendors Are Consigned to a Lower Authority

    Words Matter—Ninth Circuit Decides Issue of Contract Interpretation

    Restructuring

    The Southern District of New York’s Norske Skog Decision: What Constitutes A Refinancing May Be In The Eye of The Beholder

    Bad Boys, Bad Boys…Whatcha Gonna Do When They Come Tax You?

    Executory Contracts

    Investors Beware, A Contract Ain’t What It Used To Be!

    Cross-Border

    Lessons Learned From an International Shipping Bankruptcy

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    Bankruptcy and Insolvency News and Analysis – Week Ending February 5, 2016

    Monday, February 8th, 2016

    Houses and Money

    Sales

    Managing the Preparation, Delivery and Review of the Disclosure Schedule in Section 363 Transaction Can Help Avoid a Shipwreck

    Claims

    Subordination of Claims Under Bankruptcy §510(B)

    Bankruptcy Law News: Reclamation or Section 503(b)(9) Claim? – A Potential Trap

    Secured Claims

    In re Domistyle, Inc.: When Is a Section 506(c) Surcharge Appropriate?

    Avoidance and Recovery

    Fraudulent Transfers In Hypnotic Taxi

    Confirmation

    Ninth Circuit Follows the Lead on Absolute Priority Rule

    Unsecured Creditor Wins Over Individual Ch. 11 Debtor

    Cross-Border

    Cross-Border Closing Opinions of U.S. Counsel

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    Bankruptcy and Insolvency News and Analysis – Week Ending October 23, 2015

    Friday, October 23rd, 2015

     

    A Run on the Bank

    Trends

    The LSTA Publishes Detailed Response to the ABI Commission’s Proposed Bankruptcy Reforms

    Secured Claims

    California Court Holds Implied Consent Is a Valid Alternative Basis to Surcharge Secured Creditors’ Collateral

    Executory Contracts

    Bankruptcy Court Makes ‘Executive’ Decision, Rules Master Service Agreement Ineligible for Rejection

    Sales

    Das Moot – Debtors’ Argument that 363(m) Moots Creditors’ Appeal of Sale Order Gets Sunk by Third Circuit

    Avoidance and Recovery

    In re PSN USA, Inc: Eleventh Circuit Holds Indirect Benefits May Constitute Reasonably Equivalent Value Under Section 548

    Cross-Border

    Chapter 15 Provides Restructuring Avenue for Brazilian Companies

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    “Debtquity.”

    Tuesday, June 4th, 2013

    A recently-issued Ninth Circuit decision creates potentially new avenues of recovery for creditors of an insolvent debtor.

    Fitness Holdings International, Inc. (FHI), a home fitness corporation, had received significant funding between 2003 and 2006 from two entities: Hancock Park, its sole shareholder, and Pacific Western Bank.  FHI’s unsecured obligations to Hancock Park, totaling $24 million, were subordinated to $12 million in secured financing by Pacific Western Bank in the form of a $5 million term loan and a $7 million line of credit (all guaranteed by Hancock Park).

    In 2007, after numerous amendments, FHI re-financed its remaining obligations to Pacific Western Bank and to Hancock Park with a new $17 million term loan and an $8 million line of credit.  The payoff of Pacific Western Bank’s prior secured loan had the effect of releasing Hancock Park from its guarantee.  FHI’s efforts to restructure were ultimately not successful, however, and in 2008, the company sought protection under Chapter 11.
    A Committee of Unsecured Creditors in FHI’s case sued Hancock Park, seeking to recover the earlier pay-off of Hancock Park’s debt and alleging that the debt ought, in fact, to be re-characterized as “equity” (and that the “repayment” of the “debt” ought therefore to be avoided as a constructively fraudulent transfer, since FHI allegedly received “less than equivalent value” in exchange for the payments).
    The Committee’s complaint was dismissed; however, FHI’s case was subsequently converted from one under Chapter 11 to one under Chapter 7, and the trustee appealed the dismissal to the US District Court.  The District Court affirmed the dismissal, finding that under longstanding precedent of the Ninth Circuit Bankruptcy Appellate Panel, Hancock Park’s advances to Fitness Holdings were loans and, as a matter of law, it was barred from re-characterizing such loans as equity investments.
    The trustee appealed to the Ninth Circuit, which vacated the District Court’s decision and remanded for further findings.  In doing so, the Ninth Circuit held that in an action to avoid a transfer as constructively fraudulent under § 548(a)(1)(B), if any party claims that the transfer constituted the repayment of a debt (and thus was a transfer for “reasonably equivalent value”), the court must determine whether the purported “debt” constituted a right to payment under state law.  If it did not, the court may re-characterize the debtor’s obligation to the transferee under state law principles.
    The decision is worth noting because:
    Prior case law in the Ninth Circuit held that re-characterization of “debt” as “equity” was impermissible (see In re Pacific Express, 69 B.R. 112 (B.A.P. 9th Cir. 1986)).  This decision overrules that earlier precedent.
    The Ninth Circuit joined the Fifth Circuit (In re Lothian Oil, 650 F.3d 539, 542–43 (5th Cir. 2011)) in holding that state law – and state law alone – controls in determining when, and whether, alleged “debt” ought to be re-characterized as “equity.”
    The 3-judge panel’s ruling suggests that it is “substance” – and not “form” – which ultimately determines whether an obligation is an equity investment (rather than debt) under applicable state law.  The crucial question is “whether that obligation gives the holder of the obligation a ‘right to payment’ under state law.”
    A copy of the decision is attached.
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    Finding New Ways to Sell Troubled Assets “Free and Clear” of Liens

    Sunday, April 24th, 2011

    One of the most effective vehicles for the rescue and revitalization of troubled business and real estate to emerge in recent years of Chapter 11 practice has been the “363 sale.”

    Seal of the en:United States Court of Appeals ...

    Image via Wikipedia

     

    Named for the Bankruptcy Code section where it is found, the “363 sale” essentially provides for the sale to a proposed purchaser, free and clear of any liens, claims, and other interests, of distressed assets and land.

    The section has been used widely in bankruptcy courts in several jurisdictions to authorize property sales for “fair market value” . . . even when that value is below the “face value” of the liens encumbering the property.

    In the Ninth Circuit, however, such sales are not permitted – unless (pursuant to Section 363(f)(5)) the lien holder “could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.”

    A recent decision issued early this year by the Ninth Circuit Bankruptcy Panel and available here) provides a glimpse of how California bankruptcy court are  employing this statutory exception to approve “363 sales.”

    East Airport Development (EAD) was a residential development project in  San Luis Obispo which, due to the downturn of the housing market, never came completely to fruition.

    Originally financed with a $9.7 million construction and development loan in 2006, EAD’s obligation was refinanced at $10.6 million in mid-2009.  By February 2010, the project found itself in Chapter 11 in order to stave off foreclosure.

    A mere  two weeks after its Chapter 11 filing, EAD’s management requested court authorization to sell 2 of the 26 lots in the project free and clear of the bank’s lien, then to use the excess proceeds of the sale as cash collateral.

    In support of this request, EAD claimed the parties had previously negotiated a pre-petition release price agreement.  EAD argued the release price agreement was a “binding agreement that may be enforced by non-bankruptcy law, which would compel [the bank] to accept a money satisfaction,” and also that the bank had consented to the sale of the lots.  A spreadsheet setting forth the release prices was appended to the motion.  The motion stated EAD’s intention to use the proceeds of sale to pay the bank the release prices and use any surplus funds to pay other costs of the case (including, inter alia, completion of a sewer system).

    The bank objected strenuously to the sale.  It argued there was no such agreement – and EAD’s attachment of spreadsheets and e-mails from bank personnel referencing such release prices ought to be excluded on various evidentiary grounds.

    The bankruptcy court approved the sale and cash collateral use over these objections.  The bank appealed.

    On review, the Ninth Circuit Bankruptcy Appellant Panel found, first, that the bankruptcy court was within the purview of its discretion to find that, in fact, a release price agreement did exist – and second, that such agreement was fully enforceable in California:

    It is true that most release price agreements are the subject of a detailed and formal writing, while this agreement appears rather informal and was evidenced, as far as we can tell, by only a few short writings. However, this relative informality is not fatal. The bankruptcy court is entitled to construe the agreement in the context of and in connection with the loan documents, as well as the facts and circumstances of the case. Courts seeking to construe release price agreements may give consideration to the construction placed upon the agreement by the actions of the parties. . . . Here, the parties acted as though the release price agreement was valid and enforceable and, in fact, had already completed one such transaction before EAD filed for bankruptcy. On these facts, [EAD] had the right to require [the bank] to release its lien on the two lots upon payment of the specified release prices, even though [the bank] would not realize the full amount of its claim. More importantly, [EAD] could enforce this right in a specific performance action on the contract. For these reasons, the sale was proper under § 363(f)(5).

    The Ninth Circuit Bankruptcy Appellate Panel‘s East Airport decision provides an example of how bankruptcy courts in the Ninth Circuit are creatively finding ways around legal hurdles to getting “363 sales” approved in a very difficult California real estate market.  It likewise demonstrates the level of care which lenders’ counsel must exercise in negotiating the work-out of troubled real estate projects.

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