All items from Bankruptcy Law Insights

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 37 weeks 3 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 39 weeks 6 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 44 weeks 4 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 45 weeks 6 days 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 48 weeks 6 days 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 1 year 1 week 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 1 year 1 week 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 1 year 4 weeks 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 1 year 4 weeks 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 1 year 7 weeks ago