Monthly Archives: July 2012

Approval of Key Employee Retention Plans: Did Global Aviation Get It Right?

We recently commented on the standard for reviewing key employee incentive plans (KEIPs) and the approval of the KEIP in the Velo Holdings chapter 11 cases pending in the Southern District of New York. On July 24, Bankruptcy Judge Carla Craig of the Eastern District of New York approved a KERP (a key employee retention plan) in the Global Aviation bankruptcy cases aimed at retaining five employees deemed critical to the consolidation of the debtors’ U.S. headquarters in Peachtree City, Georgia by August 31, 2012. In re Global Aviation Holdings, Inc., 2012 WL 3018064 (Bankr. E.D.N.Y. July 24, 2012). While the Global Aviation court likely reached the correct outcome, its analysis wasn’t quite right. Continue reading

Second Circuit Affirms Arbitration Panel’s Finding That A Securities Clearing Firm May Be Liable As The “Initial Transferee” Of A Fraudulent Transfer

On July 3, 2012, the United States Court of Appeals for the Second Circuit refused to vacate an arbitration award against Goldman Sachs Execution & Clearing, P.C. The Court left intact the arbitration panel’s finding that the clearing firm was liable as the “initial transferee” of a fraudulent transfer by a customer engaged in a Ponzi scheme. The Second Circuit’s decision weakens the “mere conduit” defense that has traditionally shielded clearing firms from fraudulent transfer claims, and may increase the risk associated with accepting deposits from dishonest or insolvent customers. Goldman Sachs Execution & Clearing L.P. v. Official Unsecured Creditors’ Comm. of Bayou Group, LLC, No. 10-5049-cv, 2012 U.S. App. LEXIS 13531 (2d Cir. July 3, 2012). Continue reading

Velo Holdings KEIP Approved by SDNY Bankruptcy Court

On June 6, 2012, Bankruptcy Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York approved a $2.875 million key employee incentive plan (“KEIP”) in the Velo Holdings bankruptcy cases over the objection of the U.S. Trustee finding that it was primarily incentivizing and a sound exercise of the debtors’ business judgment. In re Velo Holdings Inc., Case No. 12-11384 (MG), 2012 Bankr. LEXIS 2535 (Bankr. S.D.N.Y. 2012). The decision follows well-settled law in the Southern District and Delaware regarding approval of KEIPs. Continue reading

Federal-Mogul Court Confirms That Bankruptcy Law Trumps Anti-Assignment Provisions in Insurance Policies

On May 1, 2012, the United States Court of Appeals for the Third Circuit in In re Federal–Mogul Global, Inc. confirmed that anti-assignment provisions in a debtor’s insurance liability policies are preempted by the Bankruptcy Code to the extent they prohibit the transfer of a debtor’s rights under such policies to a personal-injury trust pursuant to a chapter 11 plan. In re Federal-Mogul Global Inc., — F.3d —, 2012 WL 1511773 (3d Cir. 2012). In so holding, the Third Circuit follows its prior dicta as well as the precedent of its sister circuits, and provides its most definitive ruling on the issue to date. Continue reading

Judge Gropper Denies the Appointment of an Official Committee of Equity Holders in Kodak’s Chapter 11 Cases

On June 28, 2012, Judge Allan Gropper of the United States Bankruptcy Court for the Southern District of New York declined to appoint an official committee of equity holders in Kodak’s chapter 11 cases. The bankruptcy court determined that the appointment of an official committee was not warranted at that time, given that the costs to the bankruptcy estates would be substantial and equity’s interests were already represented by other constituencies seeking to maximize value and by a sophisticated ad hoc group of shareholders. In re Eastman Kodak Company, Case No. 12-10202 (June 28, 2012). Continue reading

SDNY Bankruptcy Court Holds that Venue of Houghton Mifflin Case is Improper, But Delays Transfer

On June 22, 2012, Judge Robert E. Gerber of the United States Bankruptcy Court for the Southern District of New York granted the U.S. Trustee’s motion to transfer the chapter 11 cases of Houghton Mifflin Harcourt Publishing Company and its affiliates to a different venue, notwithstanding the fact that the debtor’s prepackaged plan had been confirmed with unanimous support from its creditors, the cases were projected to conclude within 30 days of filing, and the debtors’ primary creditor constituencies supported venue in New York. While the Court found itself bound by the applicable venue statutes, the Court nevertheless held that because the statutes did not dictate when the Court must transfer the case, it would order the transfer at a time that would minimize the prejudicial effect to creditors – the first to occur of the effective date of the prepackaged plan or three weeks from the date of entry of the confirmation order. In re Houghton Mifflin Harcourt Publ’g Co., 2012 Bankr. LEXIS 2868 (Bankr. S.D.N.Y. June 22, 2012). Continue reading

Supreme Court Affirms Secured Creditors’ Right to Credit Bid at Plan Sales

On May 29, 2012, the U.S. Supreme Court in RadLAX Gateway Hotel v. Amalgamated Bank, its first significant Chapter 11 opinion in several years, affirmed the U.S. Court of Appeals for the Seventh Circuit’s decision in River Road Hotel Partners v. Amalgamated Bank, prohibiting a debtor from selling assets free and clear of liens under a plan of reorganization without permitting a secured creditor to credit bid. RadLAX resolves a circuit split and reverses prior rulings of the U.S. Court of Appeals for the Third and Fifth circuits endorsing proposed plan sales that did not provide secured creditors with the right to credit bid. Continue reading