All items from Bankruptcy Law Insights

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 35 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 37 weeks 11 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 40 weeks 15 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 45 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 45 weeks 1 day ago

Many commentators have remarked that a “new normal” has evolved for Chapter 11 proceedings, wherein the major constituents negotiate the salient terms and exit strategy of the debtor’s restructuring prior to the filing of the bankruptcy petition, generally leading to shorter, less litigious cases. This dynamic, often evidenced by a plan support agreement, a proposed sale of assets under Section 363 of the Bankruptcy Code, or a pre-packaged plan of reorganization for which creditor approval has already been solicited and obtained, has led to expeditious resolutions in many recent large and complex corporate restructurings.   
Allied Systems Holdings clearly did not get the memo.   
Its Chapter 11 case, now in its sixteenth month, has been a scorched-earth battleground featuring internal fights among its first lien lenders, conflicts between its secured and unsecured creditors, and litigation brought by its creditors’ committee against its major shareholder. 



Posted 47 weeks 6 days ago

Many commentators have remarked that a “new normal” has evolved for Chapter 11 proceedings, wherein the major constituents negotiate the salient terms and exit strategy of the debtor’s restructuring prior to the filing of the bankruptcy petition, generally leading to shorter, less litigious cases. This dynamic, often evidenced by a plan support agreement, a proposed sale of assets under Section 363 of the Bankruptcy Code, or a pre-packaged plan of reorganization for which creditor approval has already been solicited and obtained, has led to expeditious resolutions in many recent large and complex corporate restructurings.   
Allied Systems Holdings clearly did not get the memo.   
Its Chapter 11 case, now in its sixteenth month, has been a scorched-earth battleground featuring internal fights among its first lien lenders, conflicts between its secured and unsecured creditors, and litigation brought by its creditors’ committee against its major shareholder. 



Posted 47 weeks 6 days ago

A few weeks ago in In re S. White Transportation, the U.S. Court of Appeals for the Fifth Circuit permitted a secured creditor that had indisputably received notice of the debtor’s chapter 11 case, but took no steps to protect its interests until after the confirmation of the debtor’s plan, to continue to assert a lien against the debtor’s property post-confirmation. 
In S. White Transportation, the debtor contested the lien of Acceptance Loan Co. It listed Acceptance’s lien as “disputed” in its schedules. The court noted that “Acceptance received effective notice of the pendency of SWT’s bankruptcy on at least several occasions”, but Acceptance never appeared in the case and never filed a proof of claim. Acceptance also failed to object to the debtor’s plan of reorganization, which provided no recovery for Acceptance. Shortly after the debtor’s plan was confirmed by the bankruptcy court, Acceptance filed a motion seeking a declaration that its lien had nevertheless survived. 



Posted 50 weeks 6 days ago

A few weeks ago in In re S. White Transportation, the U.S. Court of Appeals for the Fifth Circuit permitted a secured creditor that had indisputably received notice of the debtor’s chapter 11 case, but took no steps to protect its interests until after the confirmation of the debtor’s plan, to continue to assert a lien against the debtor’s property post-confirmation. 
In S. White Transportation, the debtor contested the lien of Acceptance Loan Co. It listed Acceptance’s lien as “disputed” in its schedules. The court noted that “Acceptance received effective notice of the pendency of SWT’s bankruptcy on at least several occasions”, but Acceptance never appeared in the case and never filed a proof of claim. Acceptance also failed to object to the debtor’s plan of reorganization, which provided no recovery for Acceptance. Shortly after the debtor’s plan was confirmed by the bankruptcy court, Acceptance filed a motion seeking a declaration that its lien had nevertheless survived. 



Posted 50 weeks 6 days ago

Two years ago in Stern v Marshall, the Supreme Court surprised many observers by placing constitutional limits on the jurisdiction of the United States Bankruptcy Courts. The Court, in limiting the ability of a bankruptcy court judge to render a final judgment on a counterclaim against a party who had filed a claim against a debtor’s bankruptcy estate, re-opened separation of powers issues that most bankruptcy practitioners had thought settled since the mid-1980s. While the holding of Stern v Marshall itself was relatively narrow, the Court’s reasoning strongly suggested that further limitations on bankruptcy court authority could be in the offing. 
The Court has now granted certiorari in a Ninth Circuit case, Executive Benefits Insurance Agency v. Arkinson, that could lead the Court to circumscribe further or even eliminate the powers of bankruptcy court judges. 



Posted 1 year 2 weeks ago