All items from Bankruptcy Law Insights

Judge Jed S. Rakoff of the Southern District of New York last week ruled that the U.S. Bankruptcy Code does not permit a bankruptcy trustee to recover foreign transfers.  Specifically, Judge Rakoff refused to allow Irving Picard, the trustee of Bernard L. Madoff Investment Securities LLC (“BLMIS”), to recoup monies initially transferred from BLMIS to non-U.S. investment firms that were direct investors in BLMIS, and then subsequently transferred to such firms’ non-U.S. customers.  Picard argued that Section 550(a)(2) of the Bankruptcy Code empowers a bankruptcy trustee to recover fraudulently transferred funds from subsequent transferees of the initial recipient.  Judge Rakoff declined, however, to give that provision extraterritorial application, and denied recovery against the non-U.S. indirect BLMIS investors.  (Kelley Drye & Warren LLP represents certain alleged subsequent transferees.) 

Posted 1 week 1 day ago

The U.S. Supreme Court yesterday, in Executive Benefits Insurance Agency v. Arkinson, limited somewhat the ramifications of its landmark opinion two years ago in Stern v. Marshall.  The Court in Executive Benefits could have thrown the entire federal bankruptcy court system into disarray by advancing Stern’s hard line view on the limited powers of Article I bankruptcy judges.  Instead, it issued a simple and pragmatic decision that will have only minimal impact.  However, by not addressing certain key questions, the Court ensured that uncertainty will continue to hover over issues pertaining to bankruptcy court jurisdiction.    

Posted 6 weeks 3 days ago

A recent ruling in the Chapter 11 case of Free Lance-Star Publishing limited the credit bidding rights of a secured creditor.  The ruling has called into question the ability of the holder of secured debt to utilize such debt to acquire companies on a going concern basis in bankruptcy cases, particularly in instances where the debt was acquired at a discount for such express purpose.  Because this has been a common strategy of numerous hedge funds and investment vehicles that have found no shortage of willing sellers among commercial banks and other traditional lenders holding large portfolios of troubled loans, the Free Lance-Star Publishing decision and an earlier substantially similar ruling in the Chapter 11 case of Fisker Automotive have justifiably received wide attention.

Posted 9 weeks 1 day ago

For the past two years, Charles Ergen, chairman and co-founder of Dish Network, and Philip Falcone, manager of Harbinger Capital Partners, have been doing battle in the Chapter 11 case of mobile communications company LightSquared Inc.  LightSquared, primarily owned by Harbinger and controlled by Falcone, holds spectrum rights potentially worth billions of dollars, but was forced to seek bankruptcy protection in 2012 following its failure to obtain crucial FCC approvals. 

Posted 10 weeks 2 days ago

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 13 weeks 4 days 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 17 weeks 4 hours 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 21 weeks 3 days 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 25 weeks 3 hours 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 27 weeks 3 days 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 32 weeks 23 hours ago