Monthly Archives: October 2011

General Growth Properties Bankruptcy Court Upholds Ipso Facto Loan Provisions and Awards Secured Creditors Postpetition Default Interest

In two recent decisions in the General Growth Properties, Inc., et al. chapter 11 cases, the United States Bankruptcy Court for the Southern District of New York upheld certain loan provisions which provided for an automatic event of default and imposition of a default rate of interest upon the commencement of a bankruptcy case, and held that certain creditors were entitled to receive postpetition interest at the contractual default rate. General Growth Properties, Inc. and its affiliated debtors own, develop, and operate regional shopping malls across the United States. Continue reading

Federal Reserve Approves Final Living Will Rule

On October 16, 2011 the Federal Reserve signed off on the Final Rule regarding so-called living wills for large financial institutions.  The Federal Reserve approved the same rules approved by the FDIC on September 13, 2011.  For detailed discussions of … Continue reading

Chapter 9 Update: Harrisburg Files for Bankruptcy Amid Political Dispute

Harrisburg, Pa., the state capital, filed for chapter 9 bankruptcy on October 12, 2011.  The City Council authorized the filing without approval of the mayor, leaving the validity of the filing in doubt.  The state of Pennsylvania has challenged the … Continue reading

Bankruptcy Court for Southern District of New York Prohibits Triangular Setoff Provided for in Safe Harbored Contract

On October 4, 2011, the United States Bankruptcy Court for the Southern District of New York ruled that a contractual right of a triangular (non-mutual) setoff was unenforceable in bankruptcy, even though the contract was safe harbored. In re Lehman Brothers, Inc., No. 08-01420 (JMP), 2011 WL 4553015 (Bankr. S.D.N.Y. Oct. 4, 2011). In doing so, Judge Peck followed prior decisions by the Delaware bankruptcy and district courts in In re SemCrude, L.P., 399 B.R. 388 (Bankr. D. Del. 2009), aff’d, 428 B.R. 590 (D. Del. 2010) and his own decision in In re Lehman Brothers Holdings Inc., 433 B.R. 101 (Bankr. S.D.N.Y. 2010) (“Swedbank”). Continue reading

Relief For Creditors Under Section 303(f) of the Bankruptcy Code

Unlike voluntary bankruptcy cases, a debtor in an involuntary case can continue to use, acquire or dispose of property as if the case had not been commenced, until an order for relief is entered (that time is known as the “gap period”). As a result, key protections for secured or undersecured creditors like restrictions on the use cash collateral do not apply in the gap period even though the automatic stay does. This can be an uncomfortable proposition for creditors, especially where the debtor’s fiscal irresponsibility was the precipitating factor of the filing, because the “gap period” may last several months. Creditors faced with an involuntary bankruptcy case can, however, seek to modify the debtor’s use of cash or other property by obtaining relief from the bankruptcy court. Continue reading

Chapter 9 News: Barnwell County Hospital Files

On October 5, 2011, Barnwell County Hospital in Barnwell, SC filed for chapter 9 protection.  Four other entities filed for chapter 9 in the first two quarters of 2011. In a memorandum filed with the Court, the hospital asserted it … Continue reading

Picard v. Katz – District Court Dismisses Claims Asserted Against Mets Ownership Group

On September 27, 2011, Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York dismissed all but three counts of an adversary proceeding commenced by Irving H. Picard (the “Trustee”), as trustee under the Securities Investor Protection Act (“SIPA”) liquidation of Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC, against a group of defendants headlined by New York Mets owners Saul Katz and Fred Wilpon. Picard’s amended compliant, which the court described as a “short and plain statement of 373 pages,” sought to recover over $1 billion in allegedly preferential and fraudulent transfers made to the defendants within the applicable statutory look-back periods. The court dismissed all claims set forth in the complaint, except those alleging actual fraud or requesting equitable subordination. Continue reading

Mark IV Industries, Inc. v. New Mexico Environment Department – “Ongoing Pollution” Equals Ongoing Liability for Debtors

Judge Shira Scheindlin’s recent decision in Mark IV Industries, Inc. v. New Mexico Environment Dept., 2011 WL 4494955, NO. 11 CIV 648 (S.D.N.Y. Sept. 28, 2011), will make it more difficult for debtors to discharge their environmental cleanup obligations in bankruptcy. In Mark IV, the Court held that the debtor’s obligation to abate groundwater contamination at a site it did not own and had not polluted post-petition was non-dischargeable. Continue reading