All items from Bankruptcy Law Insights

A few months ago, a ruling in the Chapter 11 case of Fisker Automotive narrowed a secured creditor’s right to credit bid its debt in connection with a sale of the debtor’s assets.  The decision surprised many observers and resurrected uncertainty about a debtor’s ability to limit a secured lender’s credit bidding rights (a dispute that appeared to have been firmly resolved in favor of secured creditors only two years ago by the Supreme Court’s decision in RadLax Gateway Hotel).  Fisker Automotive put the issue of credit bidding back on the table, particularly in so-called “loan to own” situations where secured debt is purchased at a substantial discount for the purpose of effecting the acquisition of a distressed borrower.  An opinion issued last week in the Chapter 11 case of Free Lance-Star Publishing Co. is certain to further the uncertainty.  



Posted 1 day 16 hours ago

The chapter 11 filings this month of Sbarro and Quiznos share many similarities.  Both companies are looking to survive in a difficult sector of a tough industry.  Both were forced to seek bankruptcy despite recent successful efforts to reduce debt – an out-of-court restructuring for Quiznos and a 2011 chapter 11 case for Sbarro.  In addition, both cases also continued a strong trend of corporate bankruptcies that look to minimize the duration of the case.  



Posted 3 weeks 4 days ago

 
The chapter 9 bankruptcy case of the City of Detroit has been as complex and litigious as anticipated.  Nevertheless, Emergency Manager Kevyn Orr has kept plodding forward, and last week filed a proposed plan of adjustment, the road map for the Motor City to emerge from bankruptcy.  There are two key components to the plan.  The first is that it will seek to inflict somewhat less pain on retired employees than on bondholders.  The second is that it will direct approximately $1.5 billion towards Detroit’s future rather than to the payment of creditors.    
 



Posted 8 weeks 16 hours ago

Fisker Automotive’s chapter 11 case began in what has become a depressingly familiar fashion – a fast-tracked sale to a secured lender.  However, two rulings by Judge Kevin Gross of the U.S. Bankruptcy Court for the District of Delaware have made this a fascinating case to follow.  Judge Gross has directed  Fisker to proceed with an auction in which two bidders have been granted “stalking horse” status on the same assets.  He is also limiting the ability of one of the bidders to credit bid its secured debt, a determination that could give rise to a new controversy on an issue that appeared to have been resolved two years ago with the Supreme Court’s RadLax decision



Posted 11 weeks 4 days ago

A parochial elementary school and high school were recently sued in the U.S. Bankruptcy Court for the Eastern District of New York by Robert Geltzer, a bankruptcy trustee.  The suits, Geltzer v. Our Lady of Mt. Carmel-St. Benedicta School and Geltzer v. Xavarian High School, were brought in an effort to recover tuition payments made by a student’s parents who had later filed for bankruptcy. (Kelley Drye & Warren LLP represented Our Lady of Mt. Carmel-St. Benedicta School on a pro bono basis).  Judge Carla Craig, the U.S. Bankruptcy Judge before whom the cases were argued, wrote an opinion granting motions to dismiss that appropriately rejected the trustee’s legal arguments and that should deter other such cases from being brought.



Posted 14 weeks 14 hours ago

Last week’s ruling by Judge Stephen Rhodes finding the City of Detroit eligible for protection under Chapter 9 of the U.S. Bankruptcy Code has rightly received considerable attention. The determination that Detroit has met the standards under Section 109(c) of the Bankruptcy Code to be a debtor under Chapter 9 was widely expected.



Posted 18 weeks 5 days ago

In an opinion that will have a significant impact on the viability of debt for debt exchanges and out of court restructurings, Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York has refused in the Chapter 11 case of Residential Capital LLC (“ResCap”) to disallow a portion of the claims of a class of junior secured noteholders (the “JSNs”) that constituted unamortized “original issue discount” arising from a fair market value exchange of notes several years earlier.  (Kelley Drye & Warren LLP represents the indenture trustee for the JSNs).  A contrary ruling would have cast a shadow over such exchanges and would make out of court restructurings far more difficult to achieve.  Judge Glenn’s opinion resolves a long-standing question left from the landmark Second Circuit Court of Appeals decision over twenty years ago in LTV Corp. v. Valley Fidelity Bank & Trust Company (In re Chateaugay Corp.).



Posted 20 weeks 9 hours ago

The Chapter 9 bankruptcy case of Stockton, California has come to an unexpectedly quick and consensual resolution. The outcome here, which will see the city’s pension obligations maintained, is particularly surprising given the vehement opposition of Stockton’s bond insurers at the outset of the case. The bond insurers, who backstopped approximately $240 million of the city’s debt, contested Stockton’s eligibility for Chapter 9 protection. They claimed that the city’s failure to engage in negotiations with Calpers, the California public employee pension system, prior to filing its petition demonstrated a lack of “good faith” that required the dismissal of Stockton’s bankruptcy case. Although they lost that battle, comments made at the time by Judge Christopher Klein suggested that Stockton would have difficulty obtaining approval of a plan of adjustment unless it directly confronted its pension obligations.



Posted 23 weeks 14 hours ago

Two months from now will bring the five year anniversary of the unraveling of Bernie Madoff’s Ponzi scheme, one of the bookends, along with the collapse of Lehman Brothers., of the extraordinary Fall of 2008. To date, Trustee Irving Picard has recovered over $9.5 billion through litigation and settlements and distributed over $4.7 billion to former Madoff customers. 



Posted 28 weeks 1 day ago

Two months from now will bring the five year anniversary of the unraveling of Bernie Madoff’s Ponzi scheme, one of the bookends, along with the collapse of Lehman Brothers., of the extraordinary Fall of 2008. To date, Trustee Irving Picard has recovered over $9.5 billion through litigation and settlements and distributed over $4.7 billion to former Madoff customers. 
Since its commencement, the Securities Investor Protection Act (SIPA) proceeding for Bernard L. Madoff Investment Securities LLC (BLMIS) has seen a vast array of legal battles, ranging from the Trustee’s aggressive pursuit of the owners of the New York Mets to disputes testing the international reach of the U.S. Bankruptcy Courts. At its heart, however, the BLMIS case, as with all SIPA proceedings, has been about the recovery of “customer property” for the satisfaction of “net equity claims of customers.” To that end, the Trustee has had to address three crucial questions under SIPA:



Posted 28 weeks 1 day ago