All items from The Insolvency Blog - Thompson & Knight LLP

Enforceability of New York Choice of Law and Venue Provisions

The New York Court of Appeals (New York’s highest court) recently upheld the New York choice of law and venue provisions in a guaranty in the case of IRB-Brasil Resseguros, S.A. v. Inepur Invs., S. A., 2012 NY Slip Op 08669 (Ct.App. December 18, 2012).  The unanimous decision written by the chief judge held that the provisions of the guaranty allowed use of NY Gen. Obl. Law 5-1402 providing access to New York courts for actions in excess of $1 million, and that a New York choice of law clause be given mandatory effect pursuant to NY Gen. Obl. Law 5-1401(1) for transactions in excess of $250,000.
The Court, in holding mandatory application of both Sections 5-1401 and 5-1402 of the General Obligations Law, reasoned that the goal of these two sections was to “promote and preserve New York status as a commercial center and to maintain predictability for the parties.”
 The Court also held that the provision designating choice of law need not contain the language “without regard to conflict of law principals.”  Thus, guaranties and other contracts designating New York law will be applicable without a conflict of laws analysis. 



From The Insolvency Blog - Thompson & Knight LLP
Posted 3 days 12 hours ago

The Best Little Employment Blog in Texas ...

Our colleagues
in the Employment and Labor Practice Group at Thompson & Knight
have launched a new blog called "Best Little Employment Blog in Texas:
Employment-Law News and Views You Can Use."  As a follower of The Insolvency Blog, you may find this useful.

The blog will
feature timely news, advice, and tips for employers along with analysis
of developments in employment law, with an emphasis on federal and Texas
law. Plus, as the title of the blog suggests, there will be occasional offbeat or irreverent commentary on the amazing intersection of law and the workplace.
Follow this link to view the blog and to sign up to receive updates by email.



From The Insolvency Blog - Thompson & Knight LLP
Posted 5 weeks 15 hours ago

When Supply Contracts are Protected under the Section 546(e) Safe Harbor

A recent bankruptcy case addressed the vexing question of
when a transfer under a supply contract is protected from trustee avoidance
under the section 546(e) “safe harbor.” 
In DeGirolamo v. McIntosh Oil (In re Laurel Valley Oil Co.) No. 05-64330,
slip op. (Bank. N.D. Ohio Mar. 5, 2013), Debtor was in the business of
buying and selling petroleum products. 
As a cash flow management strategy, Debtor sold diesel fuel to some of
its customers on a pre-paid basis at below market value.
McIntosh Oil was one of the pre-pay customers.  When Debtor filed for protection under
chapter 7, the trustee alleged that Debtor suffered a loss of ~$3.5 million as
a result of the below market diesel sale. 
It was further alleged that as a result of the sale, McIntosh received a
corresponding benefit.  The Trustee
brought fraudulent conveyance and preference actions to recover the transfer.  McIntosh defended these actions by
claiming that the transactions fell squarely within the forward contract safe
harbor of section 546(e).



From The Insolvency Blog - Thompson & Knight LLP
Posted 7 weeks 13 hours ago

Valuation and Indubitable Equivalence in Dirt-for-Debt Cramdown Plans: In re Investors Lending Group, LLC

Valuation
of assets always engenders controversy in bankruptcy cases, but never more so
than when debtors’ plans of reorganization offer secured creditors the “indubitable
equivalent” of their claim.  When
the “indubitably equivalent” asset is real estate (a so-called dirt-for-debt
exchange), the problems compound. Real estate markets can be both volatile and
uncertain, making it harder to convince a court that the plan will meet the
high evidentiary standard of “indubitable equivalence.”  For example, the bankruptcy court in
the Eastern District of North Carolina in In re SUD Properties, Inc., Case No.
11-03833 (Bankr. E.D.N.C. 2011) found that the recessionary economy
made valuation of the real property that was proposed as the indubitable
equivalent of creditor’s claim too uncertain to meet the evidentiary standard.



From The Insolvency Blog - Thompson & Knight LLP
Posted 16 weeks 1 day ago

Energy Bankruptcy / Energy Restructuring: Litigating Value in Oil & Gas Bankruptcy Cases

Oil Pump Jack



From The Insolvency Blog - Thompson & Knight LLP
Posted 24 weeks 6 days ago

Equitable Mootness and the Deferential "Abuse of Discretion" Standard of Review

The Second Circuit Court of Appeals, in R2 Investments v. Charter Communications, Inc., announced, for the
first time the standard of review for the dismissal of an appeal on equitable
mootness grounds: abuse of discretion. 
As a result of this decision, appellants will find it more difficult to
get further appellate review of the dismissal of an appeal as equitably moot
since district courts’ decisions are far less likely to be overturned under
this standard.   
In R2 Investments,
debtor Charter Communications sought to reorganize pursuant to a pre-packaged
Chapter 11.  While operationally
sound, the company’s $22 billion debt, coupled with the 2008 contraction of the
credit markets, led to a financial reckoning.  Paul Allen (formerly of Microsoft) was a major investor in
Charter Communications.  Charter
negotiated an arrangement with Allen that “contemplated Charter’s prenegotiated
reorganization in bankruptcy.” 
Charter then filed a pre-negotiated plan, with the Allen settlement as
the “cornerstone.”  Bankruptcy
Judge Peck described the filing as “perhaps the largest and most complex
prearranged bankruptcies ever attempted, and in all likelihood … among the most
ambitious and contentious as well.”



From The Insolvency Blog - Thompson & Knight LLP
Posted 25 weeks 1 day ago

Sunnyslope Bankruptcy Case: Bad News For Secured Lenders

    During the
past two years there has been an increase in bankruptcy cases within the Ninth
Circuit Court of Appeals cramming down plans of reorganization on secured
lenders. In one of these cases, In re Sunnyslope Housing Limited Partnership,
Case No. 2:11-cv-02579 (D. Az. Sept. 18, 2012), the bankruptcy court confirmed
a plan that provided for the payment of the lender’s secured claim over a
40-year period with a substantial balloon payment and a 4.4-percent interest
rate. While this decision was reversed, in part, by the United States District
Court for the District of Arizona, the ruling provides little solace for
secured lenders because the court held that valuation of collateral under the
Bankruptcy Code does not need to be based on the property’s highest and best
use.



From The Insolvency Blog - Thompson & Knight LLP
Posted 30 weeks 3 days ago

Retail Electricity Contracts are Forward Contracts under the Bankruptcy Code

            In
MBS Management Services, Inc. v. MX Energy Electric, Inc. (5th Cir.
August 2, 2012), the Fifth Circuit Court of Appeals held that retail
electricity contracts qualify as “forward contracts” under the Bankruptcy
Code.  Accordingly, payments made
under these contracts qualify as “settlement payments” which are expressly
exempt from Trustee avoidance actions (a preference action in this case).
            In
affirming the Bankruptcy Court and U.S. District Courts’ holdings, the Fifth
Circuit rejected the Trustee’s argument that a retail contract for the sale of
electricity did not fit the forward contract definition because it failed to
include specific commodity quantities or delivery dates.  The Court noted its reliance on the
“statutory language alone … [and] neither the definition of forward contract,
nor the exemption from preference recovery contain such limitations.”  See 11 U.S.C. §§ 101(25) &
546(e).  Moreover, the forward contract
definition only requires that a contract maturity date be more than two days
after execution.  Given that no
electricity was scheduled to be delivered before this time, the contract met
the statutory definition.  The
Court further observed that just because a contract does not specify a maturity
date it does not mean the contract does not have one.
Please contact a Thompson & Knight
LLP Creditors’ Rights attorney if you would like further information.



From The Insolvency Blog - Thompson & Knight LLP
Posted 36 weeks 1 day ago

Enhancement Fee in Bankruptcy is OK, says the Fifth Circuit

Compensation issues are always thorny in bankruptcy cases.  Typically the pie is too small for every party involved to receive as large a piece as they would like, or think they are entitled to.  But when a reorganization plan pays a 100% dividend to unsecured creditors, the Fifth Circuit said a $1 million “enhancement fee” is OK.  CRG Partners Group, LLC v. Neary (In re Pilgrim’s Pride Corp.) No. 11-10774 (5th Cir. August 10, 2012).[1]
 
The Fifth Circuit in Pilgrim’s Pride addressed the specific question of whether the “Purdue Rule”[2] announced by the Supreme Court, precluding enhancement fees in federal civil rights cases, applied in bankruptcy cases.  In finding that Purdue was not binding authority, and that the case presented extraordinary facts and a fee application for “superior services that contributed to outstanding results,” the Court approved $5.98 million in fees (based upon the lodestar calculation method), and an addition $1 million “enhancement fee” for chief restructuring advisors CRG Partners.
 



From The Insolvency Blog - Thompson & Knight LLP
Posted 39 weeks 2 days ago

Credit Bidding -- “Perhaps the most hotly debated issue of bankruptcy law today”

We finally have the answer to the credit bidding question: secured creditors whose collateral is to be sold free and clear of liens pursuant to Chapter 11 debtor’s plan have the right to credit bid at the auction sale.  So held the Supreme Court in Radlax Gateway Hotel, LLC v. Amalgamated Bank, Slip Op. No. 11-166 (May 29, 2012). 
Notwithstanding conflicting opinions in the circuits, and multiple plausible readings of the relevant Bankruptcy Code language, in delivering the unanimous opinion of the court,[1] Justice Scalia characterized the issue as an “easy case.”  The Court’s resolution of this issue, however, has broad implications for creditors.  A growing number of chapter 11 cases involve asset sales pursuant to plans.  Secured creditors’ right to credit bid will increase the number of bidders at auctions, provide a check against insider malfeasance, maximize asset prices, and reduce transaction costs.



From The Insolvency Blog - Thompson & Knight LLP
Posted 43 weeks 2 days ago