All items from Business Finance & Restructuring News - Weil

In Part I of this entry, we examined developing section 546(e) safe harbor jurisprudence in Second Circuit courts by discussing Official Comm. of Unsecured Creditors of Quebecor World (USA) Inc. v. Am. United Life Ins. Co., et al. (In re Quebecor World (USA) Inc.). In Quebecor, the Second Circuit held that transfers in connection with a securities contract made by or to (or for the benefit of) a financial institution/intermediary (terms which the court used interchangeably) may qualify for the safe harbor in section 546(e) of the Bankruptcy Code even if the financial institution/intermediary is merely a conduit.
In Parts II and III of this entry, we explore two issues: first, whether a “financial intermediary” is required for the safe harbor to apply, and second, whether undoing a transaction must pose a risk to the financial markets for the transaction to receive the protection of the section 546(e) safe harbor. Although the Second Circuit has suggested its views on these issues, its decisions arguably are not clear, and we need more guidance. For the second issue, guidance is particularly necessary in the context of small transactions.



Posted 12 weeks 4 hours ago

You may recall our earlier article here discussing the Southern District of New York’s affirmation of the United States Bankruptcy Court for the Southern District of New York’s denial of a motion for relief from the automatic stay to proceed with arbitration regarding proper ownership of a painting, Madonna and Child, by Sandro Botticelli. Well, in yet another case in the Botticelli saga, the bankruptcy court considered (i) whether a perfected blanket lien on the debtor’s inventory attached to Botticelli’s Madonna and Child while it was on consignment to the debtor’s art gallery and (ii) if so, whether that lien had priority over the consignor’s interest in the return of the painting.



Posted 12 weeks 3 days ago

In In re C.P. Hall Co., the Seventh Circuit Court of Appeals held that a secondary insurer holding a pecuniary interest in a bankruptcy settlement between the debtor and its primary insurer was too far removed to have standing to object to the settlement. Though the agreement created an imminent threat to the excess insurer’s financial assets, the Seventh Circuit feared that allowing the appellant to intervene would open the floodgates to countless complaints brought forward by “accidental victims” of settlements, thereby creating severe obstacles to the efficient execution of settlement agreements in bankruptcy. Therefore, the Seventh Circuit held that where a party lacks any “concrete stake” in the bankruptcy estate, it is prohibited from intervening in the proceeding to approve a settlement.
Background



Posted 12 weeks 4 days ago

The Bankruptcy Code affords debtors a broad right to assume, assign, or reject their executory contracts. Debtors may pick and choose among their executory contracts — assuming those contracts that they favor and rejecting the others — the choice is theirs. There is, however, one catch. Regardless of whether a debtor decides to assume, assign, or reject the executory contract, its decision applies to the entire contract; the debtor cannot cherry pick among the terms of a contract. For this reason, a debtor will generally be incentivized to view a bundle of related agreements as separate independent contracts so as to retain the right to assume only those contracts that are beneficial to its postpetition operations, whereas the counterparty to such related agreements will generally prefer to view the related agreements as one integrated contract which the debtor must assume as a whole so as to retain the benefit of its bargain.
Background



Posted 12 weeks 5 days ago

 NORTH OF THE BORDER UPDATE
This article has been contributed by Julien Morissette, associate in the Insolvency and Restructuring Group of Osler, Hoskin & Harcourt LLP.
The approach to be used for insolvent single asset real estate companies has been debated before Canadian courts for some time. Typically, the companies want to continue operating and attempt a restructuring, while the first ranking secured creditor wants to foreclose or appoint a receiver. The debate often came down to who should benefit from any upside. While certain courts have been receptive to secured creditors, in a recent judgment the Superior Court of Québec allowed a one-building company to attempt a restructuring, a result which should be noted by the insolvency and financing communities.
Casperdiny IFB Realty Inc. (Casperdiny) and Les Appartements Club Sommet Inc. (together with Casperdiny, the Debtors) were the developers of a 291 unit apartment tower in downtown Montréal. They were in default of making payments to their creditors, including importantly the first ranking secured creditor, Timbercreek Senior Mortgage Investment Corp. (Timbercreek).



Posted 12 weeks 6 days ago

Meridian Sunrise Village, LLC v. NB Distressed Debt Investment Fund Limited, No. 13-5503RBL, 2014 WL 909219 (W.D. Wash. March 7, 2014).
What You Need To Know:  Buyer beware: Distressed debt investors who purchase the debt of a borrower in bankruptcy, where the borrower’s underlying loan agreement contains an “Eligible Assignee” restriction, may be at risk of not being able to hold such debt and exercise the rights of a lender.  Meridian Sunrise turned on a choice between two competing interpretations of “financial institution” under a $55 million loan agreement governed by Washington state law.  In this case, distressed debt funds were held not to be “financial institutions” by the United States District Court for the Western District of Washington and were therefore not “Eligible Assignees.”  It may seem obvious, but purchasers of distressed debt from debtors/borrowers in the secondary market should review loan agreements governing the debt they purchase, confirm they are permitted assignees of the paper, and ensure they have recourse against the seller of the debt in the event of ambiguity or challenge.



Posted 13 weeks 10 hours ago

In a decision resolving an interlocutory bankruptcy appeal, the United States District Court for the Southern District of New York concluded that certain prepetition federal claims based on the False Claims Act asserted against the reorganized debtor, a military aircraft manufacturer, might not be dischargeable despite the debtor’s confirmed plan.  In United States ex rel. Minge v. Hawker Beechcraft Corporation, the district court reversed the bankruptcy court and ruled that the exceptions to the corporate discharge provisions under section 1141 of the Bankruptcy Code did not incorporate the procedural requirements under section 523 and Rule 4007(c) of the Federal Rules of Bankruptcy Procedure, which mandated the commencement of an adversary proceeding to determine dischargeability prior to a set deadline.  The district court concluded that because the plaintiffs alleged the debtor’s fraud in government contracting, the FCA claims could fall under the provision of the Bankruptcy Code that excepts from discharge those debts that were obtained by “false pretenses, a false representation, or actual fraud . . . .”
The FCA Claims



Posted 13 weeks 3 days ago

“So make your life a little easier; When you get the chance, just take; Control”
– Janet Jackson
We know that a corporate parent cannot use its control over its subsidiary to deplete it of value and render the entity insolvent.  Veil-piercing and claims to recover fraudulent transfers or for breach of fiduciary duty (among others) can remedy such wrongful acts.  But can a subsidiary corporation wrongfully manipulate its parent?  If so, what is the remedy?
In Burtch v. Owlstone, Inc. (In re Advance Nanotech, Inc.), the United States Bankruptcy Court for the District of Delaware concluded that yes, children can control their parents, and yes, they can owe “upstream” fiduciary duties to their shareholders.  Consequently, the parties controlling a transaction should take particular care in ensuring that they are aware to whom exactly they owe their duties and that the various parties to any transaction are all at appropriate arm’s length.



Posted 13 weeks 4 days ago

“Break-up fees,” a common deal-protection construct, both inside and outside of chapter 11, are designed to compensate an initial bidder or prospective lender for the time and money invested in formulating and documenting a transaction and establishing a “floor” for potential terms.  In recent years, however, courts have been critical of break-up fees and other bidding protections on the basis that such protections are unnecessary to safeguard lenders and may discourage debtors from exploring higher and better offers for the benefit of the estate and creditors.  So-called “stalking horse bidders” and break-up fees took yet another hit, in a recent decision, In re C & K Market, Inc., by the United States Bankruptcy Court for the District of Oregon, which ruled that a break-up fee for a prospective debtor-in-possession (DIP) financing lender was a prepetition claim not entitled to administrative expense priority.
Background



Posted 13 weeks 5 days ago

The highly publicized Fisker credit bidding decision has received much attention on our blog.  As we previously wrote, while some may argue that post-Fisker credit bidding concerns are unwarranted, the decision at least raises the question of what constitutes sufficient “cause” to limit credit bidding.  Well, it did not take long for the first Fisker domino to fall. 
The issue resurfaced last week when Judge Huennekens, United States Bankruptcy Court Judge for the Eastern District of Virginia, entered his Memorandum Opinion citing to Fisker as support for his decision to cap a secured lender’s ability to credit bid in the bankruptcy case of Free Lance-Star Publishing Co.  Although some of the same factors that existed in Fisker existed in that case (a less-than-complete collateral package, inequitable conduct on the part of the secured creditor), the court’s very harsh language directed at the mere use of a loan-to-own strategy may have distressed debt investors fearing a Fisker avalanche.



Posted 13 weeks 6 days ago