All items from Basis Points

Thanks to all that submitted a haiku about the 2014 FIFA World Cup™. Speaking of the World Cup, Basis Points BIC aka Blogger-in-Chief Evan Flaschen catches up with TradeWinds and explains how a  lengthy Chapter 11 bankruptcy fight is quite comparable to Team USA’s 2-1 victory over Ghana this past Sunday. Click here to read the full article.
Back to the Annual Haiku contest, — There are two more chances to win Rudy’s tickets, with our next contest kicking off July 16.
By: Bob Burns

Posted 3 weeks 3 days ago

On June 2, 2014, EPA issued a proposed rule to control greenhouse gas emissions (GHGs) from the electric power generation sector of the United States. EPA’s goal is to obtain a reduction of GHG emissions in 2030 from this sector of 30% from the baseline year 2005. The 2005 baseline allows EPA to take credit for GHG emission reductions that have occurred since that time without any regulatory obligation. The proposal establishes GHG emission targets for each State (expect the District of Columbia and Vermont who do not have goals under the rule). Interim emission targets must be obtained in the 2020-2029 timeframe with final targets obtained by 2030.
For an analysis of the proposed rule from the perspective of Bracewell’s Energy and Environmental Strategies lawyers, click here.
The proposal does not suggest any particular emission limit on particular plants, but imposes the obligation on the States to derive a plan to achieve the reductions. The only penalty for noncompliance in the proposal is that EPA would impose an EPA-developed plan within the State if it fails to submit an approvable plan. While EPA has not dictated any particular approach a State may employ, the proposal favors a cap and trade or carbon tax system as the primary manner to obtain GHG emissions reductions.

Posted 7 weeks 5 hours ago

The inclusion of pre-bankruptcy waivers in “standard issue” credit documents has generated a host of litigation in bankruptcy cases about the enforceability of such provisions. While certain waivers among creditor classes have been called “safe” (e.g., a junior creditor waiving the right to object to actions by a more senior creditor), bankruptcy courts have generally balked at upholding waivers by a debtor of fundamental bankruptcy rights, such as the right to commence a chapter 11 case. The usual rationale cited for striking down such provisions is that they violate public policy and prevent the orderly reorganization that Chapter 11 is designed to foster. 

Posted 10 weeks 3 days ago

On March 14, 2014, the Delaware Supreme Court issued its eagerly-awaited decision in Kahn v. M&F Worldwide Corp., No. 334, 2013 (Del. March 14, 2014).  The Court affirmed the Chancery Court’s holding (Strine, C.) that the deferential business judgment standard of judicial review – rather than the rigorous entire fairness standard – will apply to a controlling stockholder transaction if, from the outset, the transaction is (i) subject to negotiation and approval by an independent special committee empowered to say no, and (ii) conditioned on and approved by an uncoerced, fully informed majority of the minority stockholder vote.  Although this framework has been endorsed by several Chancery Court decisions, the Delaware Supreme Court had not had the occasion to resolve the applicable standard of review when both of these minority stockholder procedural protections were employed at the outset.  While the decision appears to provide a roadmap to minimize litigation risk in controlling stockholder transactions, the practical effect of the decision remains to be seen.

Posted 18 weeks 1 day ago

In a closely-watched case, the United States Court of Appeals for the Third Circuit recently affirmed the decision of the Delaware District Court, holding that bankruptcy claims are subject to disallowance under section 502(d) of the Bankruptcy Code despite their subsequent sale to a third-party transferee. In In re KB Toys, Inc., No. 13-1197 (3d Cir. Nov. 15, 2013), the Third Circuit found that the “cloud of disallowance” cannot be parted from the claim. This decision (which can be found here) is noteworthy since it runs contrary to the New York federal district court’s previous decision in the Enron chapter 11 case which found claim disallowance as a personal disability that did not adhere to the claim.    

Posted 35 weeks 2 days ago

In connection with the bankruptcy of a bank holding company (the “Bank Holdco”) and its operating bank subsidiary (the “Bank”), there are often different classes of creditors competing for one tax refund.  If the Bank Holdco is the parent corporation of a consolidated group of corporations (the “Consolidated Group”), the Bank Holdco usually is treated as the agent of the group for federal income tax purposes. In such a situation, the Bank Holdco files income tax returns on behalf of the Consolidated Group, carries back and forward net operating losses of the Consolidated Group and receives from the IRS any refund of taxes paid by the Consolidated Group as the group’s agent. The federal income tax rules do not address the allocation of tax refunds received by the Bank Holdco with respect to the members of the Consolidated Group. Thus, the members of the Consolidated Group typically execute a tax sharing agreement (a “TSA”) that provides that each group member will pay the Bank Holdco its share of the federal income taxes owed by the Consolidated Group and will receive its portion of any tax refunds received by Bank Holdco attributable to the losses generated by such member.

Posted 38 weeks 19 hours ago

While newly discovered Element 115 (or “ununpentium” as scientists are temporarily calling it) appears to have vanished quickly in a flash of radiation in front of the eyes of Swedish scientists, the United States Bankruptcy Court for the Western District of Oklahoma confirmed that make-whole is a well-established stable compound and here to stay. See the order here. As our loyal Basis Points followers know, one of our favorite topics of discussion and fodder for the blog is make-whole premiums. Our previous blogs on the American Airlines and Trico Marine make-whole decisions can be found here and here. In GMX Resources Inc., the Court overruled the Official Committee of Unsecured Creditor’s (the “Committee”) objection to the first lien lenders’ make-whole claim. While this decision may not be as groundbreaking as the newly discovered “Element 115,”  it is a win for investors who rely on the make-whole to be made whole. Let’s be the first to call it “make-whole-ium”…

Posted 47 weeks 22 hours ago

While the arrival of His Royal Highness Prince George Alexander Louis of Cambridge has dominated the British (and the world) headlines this week, the U.K. Supreme Court delivered its own long awaited bundle of joy earlier today. In the latest decision in the laborious Nortel and Lehman litigations, the U.K. Supreme Court reversed a lower court decision and held that pension claims should not be treated as priority claims and, instead, they should rank equally with general unsecured claims. The full decision can be found here. The bells at Westminster may be silent for this announcement, but U.K. insolvency professionals, along with creditors in current and future U.K. restructurings, are likely rejoicing.
The Nortel and Lehman cases have been making insolvency headlines around the world since the commencement of their respective restructurings. We have previously written about certain aspects of the Nortel litigation that involved the application of the U.S. automatic stay to the U.K. pension plan trustee (our prior blog on that topic can be found here).

Posted 52 weeks 22 hours ago

Thanks to Anna Nicole Smith and the June 2011 landmark Supreme Court decision in Stern v. Marshall, there are seemingly more questions regarding a bankruptcy judge’s authority to enter final orders (or even proposed orders) than ever before. Those unanswered questions have created considerable uncertainty and, not surprisingly, lengthier and costlier litigation in bankruptcy. Thankfully, the Supremes decided on June 24, 2013 that they will address two of the many questions left unanswered by Stern. (This is separate of course from the question of who would have ever thought we’d be talking about Anna Nicole Smith and Supreme Court precedent in the same sentence.)
Specifically, the Supreme Court will hear an appeal from the Ninth Circuit Court of Appeals[1] (the same Court that brought the Stern issue to the Supremes in the first place) to address whether a bankruptcy court has authority to (i) submit proposed findings of fact and conclusions of law to the district court in “core” matters; and (ii) enter a final order based upon the parties’ express or implied consent. The Ninth Circuit Court of Appeals ruled in the affirmative on both of these issues.

Posted 1 year 3 weeks ago

Navigating the most recent leg in the Quebecor regatta, the Second Circuit affirmed the judgment of the district court and ruled that prepetition transfers made in connection with a securities contract may qualify for safe harbor from avoidance actions under section 546(e) of the Bankruptcy Code—even if the transferee is a mere “conduit” or “intermediary” financial institution. In re Quebecor World (USA) Inc. (Official Committee of Unsecured Creditors of Quebecor World (USA) Inc. v. American United Life Insurance Co.), No. 12-4270-bk (2d Cir. June 10, 2013). A copy of the decision is available [HERE].

Posted 1 year 6 weeks ago