All items from Basis Points

Privilege, With Some Texas Hot Sauce

Yesterday (September 12, 2012) the Bankruptcy Court for the Southern District of Texas provided an excellent lesson on the need to know what sauce is going into the stew that governs privileged communications in bankruptcy proceedings.[1] 
The Bankruptcy Court in In re Rodriguez was faced with 2,000 documents delivered to chambers for in camera inspection in connection with a discovery dispute. The Trustee and certain Petitioning Creditors (and their lawyers) had exchanged all those documents believing that they were subject to the “common interest privilege,” but their adversaries in litigation didn’t see it that way. The determining factor was which law (or sauce) would apply:  Texas law or federal common law.



From Basis Points
Posted 35 weeks 2 days ago

Tribal Casino Bankruptcy? Not Yet.

In the case of In re Santa Ysabel Resort and Casino, the Bankruptcy Court for the Southern District of California heard arguments on September 4, 2012, as to whether the alleged debtor, a tribal casino, was eligible for bankruptcy protection. The court concluded the casino was not an eligible debtor under the Bankruptcy Code.
The casino claimed that it was not a governmental unit, which is excluded as an eligible debtor for purposes of Chapter 11, but an unincorporated company. Opposing creditors and the US Trustee argued that the tribe was merely doing business as the Santa Ysabel Resort and Casino, which was an arm of the tribal government and that it had never been, and did not possess the hallmarks of, an unincorporated company.
The court noted that, while there was some appeal to expanding bankruptcy protection as the casino requested on the grounds that Congress intended such protection to be expansive, the casino failed to meet the characteristics of an unincorporated company as the casino had recently begun describing itself. Accordingly, the court concluded that the tribal casino failed to satisfy its burden of establishing eligibility under section 109 of the Bankruptcy Code.



From Basis Points
Posted 36 weeks 3 days ago

For Whom the Bell [Decision] Tolls…

Whether you are a John Donne, Ernest Hemingway or Metallica fan, the above clause rings a bell. Last week the Court of Appeal for Western Australia joined those “Riding the Lighting” and provided its own musings on “For Whom the Bells Tolls” down under. Rather than affirming that the bell tolls for the infamous Spanish guerrilla fighters or a tortured metaphysical poet, the Australian court provided a new answer: The Bell [decision] tolls for “would be” secured lenders. In the latest decision of a 16-year protracted litigation, the Court of Appeal for Western Australia held that banks who took security over assets of The Bell Group a year before the company commenced liquidation proceedings were liable to the liquidators in an approximate amount of $2 billion for assisting the company directors in breaching their duties.



From Basis Points
Posted 38 weeks 5 days ago

Curiosity Safe on Mars, Forward Contracts Safe Under Section 546(e) of the Bankruptcy Code

As NASA engineers breathe a sigh of relief after the “seven minutes of terror” that was the rover Curiosity’s landing on Mars, recipients of payments under commodity forward contracts can—at least in the Fifth Circuit—rest assured that agreements that meet the basic definition of forward contract contained in section 101(25) of the Bankruptcy Code will be protected from preference liability should their counterparties find themselves in bankruptcy. Last Thursday, in Lightfoot v. MXEnegry Electric, Inc. (In re MBS Management Servs., Inc.). No. 11-30553 (5th Cir. Aug. 2, 2012), the Fifth Circuit Court of Appeals declined a bankruptcy trustee’s invitation to limit “forward contracts” to contracts that specify a particular quantity or date for performance. 
MBS provided property management services for terrestrial apartment complexes owned by its affiliates. In 2005, MBS agreed to purchase the “full electric requirements” for certain of its affiliates’ properties from Vantage Power Services, LP, at a set rate for a 24 month term. Vantage later sold the agreement to MXEnergy Electric, In. (“MX”). In August of 2007, MBS paid $156,345.43 to MX to cover MBS’ affiliates’ past-due electric bills. MBS filed chapter 11 on November 5, 2007, and the MBS trustee sought to avoid the transfer as a preference. MX argued that the payment was shielded from avoidance under 546(e), which protects payments made pursuant to forward contracts.



From Basis Points
Posted 40 weeks 5 days ago

Supreme Court Confirms that Credit Bidding is Alive and Well

Today, the Supreme Court of the United States issued its much awaited decision in RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. ______ (2012). The noteworthy decision resolves any uncertainty surrounding a secured creditor’s right to credit bid in a sale under a chapter 11 plan which arose after cases like Philadelphia Newspapers 599 F.3d 298 (3d Cir. 2010) curtailed the right. In a unanimous decision (Kennedy recused), the Court held that debtors may not sell their property free and clear of liens under a plan of reorganization without allowing lienholders to credit bid. In so concluding, the Court settled a circuit split on the issue between the Third Circuit (see In re Philadelphia Newspapers, LLC, 599 F.3d 298 (3d Cir. 2010) (holding that secured lenders do not have an absolute right to credit bid in an auction process carried out under a chapter 11 plan)) and the Seventh Circuit (see River Road Hotel Partners, LLC v. Amalgamated Bank, 651 F.3d 642 (7th Cir. 2011) (declining to follow Philadelphia Newspapers and upholding secured lender’s right to credit bid in a sale under a chapter 11 plan)).



From Basis Points
Posted 50 weeks 4 days ago

TOUSA Appeal: 11th Circuit Reinstates Bankruptcy Court’s Fraudulent Transfer Opinion as Against All Defendants

TOUSA involved one of the largest fraudulent transfer litigations in bankruptcy history.  The Bankruptcy Court agreed with the Unsecured Creditors’ Committee that both the so-called “New Lenders” and the “Transeastern Lenders” received fraudulent transfers as part of a July 31, 2007 financing transaction.  The District Court reversed in a scathing opinion, but today the 11th Circuit Court of Appeals has reversed the District Court and reinstated the Bankruptcy Court’s opinion in its entirety.  The opinion can be found HERE. All that is left now is for the District Court to consider the issue of the remedies previously ordered by the Bankruptcy Court.



From Basis Points
Posted 1 year 3 days ago

A Priming DIP in Québec? Beau Dommage!

We previously reported on Basis Points that the Ontario Court of Appeal unanimously ordered that employer pension contributions required under Ontario’s Pension Benefits Act primed charges securing the company’s DIP financing in Re Indalex Limited, 2011 ONCA 265 (Apr. 7, 2011) (see blog post: Canadian Court Cracks the Nut of a Priming DIP; Are Secured Claims Next?). But, sacrebleu, put down your poutine! While waiting for an appeal to the Supreme Court of Canada, it turns out that Les Habitants still reign supreme—at least in Québec. In a return to old-style hockey, the Québec Superior Court boarded Indalex in Québec and sounded the goal horn for the super-priority claim of the DIP lenders ahead of the claims of the defensive-minded pension participants in Re White Birch Paper Holding Co., 2012 QCCS 1679 (April 20, 2012) (available here, mais uniquement en français).



From Basis Points
Posted 1 year 2 weeks ago

And the Money Stopped Rolling In…Argentina Nationalizes Majority Stake in Oil Producer YPF

Last week Argentina’s President Cristina Fernandez de Kirchner proposed legislation regarding the government takeover of YPF, a major Argentine oil producer, by expropriating REPSOL’s majority stake in YPF.  A copy of the proposed Law No. 529/12 (the “Law”) and the address to congress can be found here (in Spanish).
We previously wrote about the amended insolvency law in Argentina which permitted employees of a bankruptcy company to petition the court for authority to take over a company and suspend payments to creditors for up to two years (see Creditors Beware: In Argentine Bankruptcies, Employees Now Call the Shots posted on August 15, 2011).  We predicted that this would have an adverse effect on foreign investment, as such a provision only added more uncertainty to a historically unpredictable insolvency regime. Now with the nationalization of REPSOL’s majority stake in YPF, Argentina has likely taken another step further in discouraging foreign investment. As the song goes “[Cristina’s] pretty hands reached out and they reached wide.”  The question is how far and how many companies will be affected.



From Basis Points
Posted 1 year 3 weeks ago

Don’t be Late, for That Very Important [Bar] Date!

On March 13, 2012 the Queen of Hearts in the Fifth Circuit Court of Appeals showed no sympathy for the White Rabbit’s plight and denied a creditor’s appeal of an order disallowing its late filed proof of claim in the DHL Master Land Holding LLC bankruptcy case.1
The bank-creditor (the “Bank”) received its invitation to DHL’s chapter 11 proceeding in February of 2010, but did not notify its counsel of the matter until “late May, early June” and directed them to focus on DHL’s non-debtor affiliates as co-debtors on obligations owed to the Bank.



From Basis Points
Posted 1 year 8 weeks ago

A Private Foreign Issuer Who Issues US Notes Shielded by Sovereign Immunity??

Imagine an international issuer with US branch offices selling private placement notes in the US to US institutional investors, with the notes governed by NY law and the issuer submitting irrevocably to NY jurisdiction. Now imagine that the issuer’s common shares are taken over by its government, which then asserts sovereign immunity in response to a noteholder lawsuit in New York. Surely the notes retain their character as private investments or, at a minimum, the “commercial activity” exception to the Foreign Sovereign Immunity Act (the FSIA) applies? Not so, according to the District Court for the Southern District of New York, in a decision now on appeal to the Second Circuit Court of Appeals. Fir Tree Capital Opportunity Master Fund v. Anglo Irish Bank, 2011 WL 6187077 (S.D.N.Y. Nov. 28, 2011), appeal docketed No. 11-5310 (2d Cir.) which can be found HERE.



From Basis Points
Posted 1 year 9 weeks ago