All items from Bankruptcy Law Insights

Judge Brendan Shannon of the U.S. Bankruptcy Court for the District of Delaware last week approved the sale of Digital Domain Media Group, the special effects company founded by James Cameron, following one of the fastest distressed m&a transactions ever in a Chapter 11 case. The auction, held only 10 days after the petition date, nevertheless resulted in robust bidding and resulted in a purchase price of $30.2 million, double the $15 million offer of the initial bidder. 
Prior to this case, most corporate bankruptcy professionals probably were of the view that a fast sale of a company in Chapter 11 could take place only in the most unique circumstances, such as were seen in Lehman Brothers and General Motors. Because of the size and complexity of those enterprises, and the potential ramifications of their failure on the U.S. economy and global financial markets, the consensus for the past few years has been that those cases were outliers with fact patterns almost certain not to be repeated. 

The Second Circuit Court of Appeals recently heard arguments in a case that could have substantial implications on the trading of bankruptcy claims. While the court could choose to resolve the case, Longacre Master Fund, Ltd. v. ATS Automation Tooling Systems Inc., based on a straightforward analysis of New York contract law, it may also take the opportunity to consider the controversial claims trading case of Enron v. Springfield Associates decided several years ago by the district court for the Southern District of New York. Enron held that a claim objection under Section 502(d) of the Bankruptcy Code based on the receipt of a voidable preference payment was valid only against the recipient of such payment, and could not be used to object to such claim in the hands of a good faith purchaser.   

Whether Glass-Steagall would have prevented the great financial meltdown of 2007 through 2009 remains debatable.  Nevertheless, hearing Sandy Weill, who effectively served as the law's official undertaker, essentially call for its reinstatement is nothing short of remarkable (and perhaps more than a little frustrating).  Going far beyond the proprietary trading limitations contemplated by the Volcker Rule, it would require the breaking up of the largest financial institutions into commercial banks accepting insured deposits and investment banks.     

The chapter 11 case of mortgage lender and servicer Residential Capital, LLC (“ResCap”) is fascinating on a number of levels. Its parent company, Ally Financial, Inc. (“AFI”), hopes to use ResCap’s bankruptcy to extricate itself from potential liabilities arising from the collapse of the residential housing market at the end of the last decade. To that end, AFI has welcomed a thorough investigation in the chapter 11 case of its relationship with ResCap and transactions between the two entities, in the hope that a showing of no impropriety can form the basis for a global settlement that can be approved by the bankruptcy court.