Monthly Archives: May 2012

District Court for the Southern District of New York Reaffirms Extraterritorial Effect of the Automatic Stay

On May 4, 2012, Judge J. Paul Oetken of the United States District Court of the Southern District of New York held that the Bankruptcy Court has the injunctive power to enforce the automatic stay against entities falling within the Bankruptcy Court’s in personam jurisdiction, and that, in this case, the enforcement of the automatic stay did not violate interests of comity. Sec. Investor Prot. Corp v. Bernard L. Madoff Inv. Sec., LLC (In re Bernard L. Madoff Inv. Sec., LLC), No. 11 Civ. 8629 (JPO), 2012 WL 1570859 (S.D.N.Y. May 4, 2012). Continue reading

RadLAX Review – Supreme Court Requires Debtor to Permit Credit Bidding

The Supreme Court held 8-0 that section 1129(b)(2) of the bankruptcy code requires that if a debtor proposes to sell property under a plan of reorganization it must permit secured lenders to submit credit bids in the sale process. The outcome is consistent with our views of the rights of secured lenders under appropriate bankruptcy practice – however, the Supreme Court’s analysis eschews policy concerns and focuses almost exclusively on the plain language of the statute and applicable canons of statutory construction. Continue reading

In re Heritage Highgate, Inc.: Timing Is Everything to Secured Creditors Facing Valuation Issues

On May 14, 2012, the United States Court of Appeals for the Third Circuit upheld a ruling by the Bankruptcy Court for the District of New Jersey that the fair market value of a creditor’s collateral as of the plan’s confirmation date is the proper method of valuing a secured creditor’s claim pursuant to section 506(a) of the Bankruptcy Code. The Third Circuit also adopted a “burden-shifting framework,” finding that a secured creditor will bear the ultimate burden of proving the extent to which its claims are secured pursuant to section 506(a). Continue reading

Join Cadwalader on June 14 for our Distressed Energy Investments Program

Distressed Energy Investments: Grappling with Generation Restructuring in an Adverse Market Cadwalader, Wickersham & Taft LLP will host a discussion on the ever-changing business landscape for energy companies created by recent market changes, FERC regulations and the Dodd-Frank Act. Keynote … Continue reading

Akanthos: Eleventh Circuit Denies Noteholders’ Fraudulent Transfer Claims due to No-Action Clause in Indenture

On April 25, 2012, the U.S. Court of Appeals for the Eleventh Circuit overturned a decision by the U.S. District Court for the Northern District of Georgia permitting noteholders to proceed with a fraudulent transfer suit against the issuer of their notes, despite a clause in the indenture prohibiting such suits. The Eleventh Circuit held that the prohibition in the indenture, otherwise known as a “no-action clause”, should be strictly enforced, and that the noteholders were thus barred from bringing fraudulent transfer claims against the issuer and its officers and directors. Akanthos Capital Mgmt, LLC, et al. v. CompuCredit Holdings Corp., et al., Case No. 11-13227 (11th Cir. Apr. 25, 2012). The Eleventh Circuit’s decision comports with the majority of courts that have interpreted no-action clauses in this context and provides greater certainty in the marketplace regarding the litigation risks associated with bond issuance. Continue reading

Just When I Thought I Was Out . . . Eleventh Circuit Rules in TOUSA that Refinanced Lenders Can Be “Pulled Back In” and Held Liable if a Replacement Loan is a Fraudulent Transfer

On May 15, 2012, the Eleventh Circuit Court of Appeals upheld a ruling by the Bankruptcy Court for the Southern District of Florida, which required certain lenders to return $403 million in prepetition payments they had received from TOUSA, Inc. because the new loan TOUSA obtained to make those payments was a fraudulent transfer. The Eleventh Circuit’s decision raises serious questions regarding whether lenders whose loans are paid off in a refinancing may be forced to disgorge or return funds to a debtor if the refinancing loan is later found to be avoidable under the bankruptcy code. Senior Transeastern Lenders v. Official Committee of Unsecured Creditors (In re TOUSA, Inc.), Case No. 11-11071 (11th Cir. May 15, 2012). Continue reading

Eleventh Circuit Reinstates Controversial Bankruptcy Court Opinion in In re TOUSA

On May 15, 2012, the U.S. Court of Appeals for the Eleventh Circuit reinstated the controversial 2009 opinion from the U.S. Bankruptcy Court for the Southern District of Florida in In re Tousa Inc., which allowed the estate to avoid as fraudulent transfers approximately $420 million in loans extended to the bankrupt home builder as part of a July 2007 financing transaction. Continue reading

The Ninth Circuit Affirms Inflexible Standard of Finality for Purposes of District Court Appeals

On March 6, 2012, the United States Court of Appeals for the Ninth Circuit held that the flexible standard for finality generally applied in bankruptcy cases does not apply to appeals from orders of a district court sitting in bankruptcy. Klesdadt & Winters, LLP v. Cangelosi, 642 F.3d 809 (9th Cir. 2012). In so holding, the Ninth Circuit reaffirmed its position as the only circuit that applies less flexible jurisdictional standards to appeals from district courts sitting in bankruptcy as compared with appeals from bankruptcy courts. Continue reading

Extent of Non-Debtor Parent Exposure Under Channeling Injunctions

On April 10, 2012, the U.S. Court of Appeals for the Second Circuit in In re Quigley issued an opinion adopting a narrow interpretation of Section 524(g)(4) of the Bankruptcy Code,
which allows a bankruptcy court to enter an injunction that bars certain actions brought by plaintiffs against non-debtor third parties, such as a non-debtor parent company. Quigley reminds solvent corporate parent companies that there are limits to bankruptcy courts’ injunctive powers to insulate such parent companies from potential claims when their subsidiaries file for bankruptcy to restructure asbestos-related tort liabilities. Continue reading

Not So Fast – 363 Sales May Not Be Free and Clear of Future Claims

In recent years, section 363 sales have increased in prominence. According to the UCLA-LoPucki Bankruptcy Research Database, less than 4 percent of all large, public company bankruptcies were resolved by sales of all or substantially all of a debtor’s assets from 1990-2000. However, in the period from 2001-2010, that figure rose to nearly 20 percent – peaking in 2008 when 32 percent of large public cases were resolved by an asset sale.[i] Purchasers like section 363 sales because, among other reasons, they purchase assets “free and clear” of all pre-bankruptcy obligations under section 363(f) of the Bankruptcy Code. However, as 363 sales increased in frequency, courts have begun to limit the free and clear nature of those sales, particularly with respect to future claims that had not arisen at the time of the sale. Continue reading