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- Court Finds Investment Advisor’s Payments to Customers Are Not Exempt From Avoidance Under Section 546(e) of the Bankruptcy Code
- Vitro Update: “Savings Clause” Fails to Save Vitro Subsidiaries From Involuntary Bankruptcy
- SDNY Denies Payment of Administrative Expense Claim by Relying on the Operative Document as a Whole and Rejecting a Statutory Rule of Construction
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Author Archives: Audrey Aden Doline
Stern v. Marshall Update – Ninth Circuit Holds That Bankruptcy Courts Lack Constitutional Authority To Finally Determine Fraudulent Transfer Claims Against Non-Claimants
On December 4, 2012, the United States Court of Appeals for the Ninth Circuit added to the growing body of case law delineating the extent of bankruptcy courts’ jurisdiction in the wake the Supreme Court’s decision in Stern v. Marshall. In In re Bellingham Insurance Agency, Inc., the Ninth Circuit held that (i) non-Article III courts lack the Constitutional authority to enter final judgments in fraudulent transfer actions against non-claimants, (ii) bankruptcy courts may hear and enter findings of fact and conclusions of law in fraudulent transfer actions, and (iii) a defendant may waive its Constitutional right to be heard before an Article III court. Continue reading
Posted in Stern v. Marshall Updates
Fifth Circuit Crafts New Test For Foreign Debtor Relief
On Nov. 28, 2012, the U.S. Court of Appeals for the Fifth Circuit in In re Vitro S.A.B. de C.V. issued a groundbreaking decision under Chapter 15 of the Bankruptcy Code, which provides the mechanics for U.S. bankruptcy courts to deal with cross-border insolvency proceedings. Although deference to judgments of foreign courts is the norm under Chapter 15, in this instance the Fifth Circuit refused to enforce a court-approved Mexican plan of reorganization on the ground that it contained non-consensual non-debtor releases of noteholders’ claims against the debtor’s non-debtor subsidiaries. Unlike the bankruptcy court below, the Fifth
Circuit did not hold that non-consensual nondebtor releases are “manifestly contrary” to U.S. public policy. Instead, the court held that such releases could theoretically be approved in Chapter 15 cases, but only upon a showing of the same type of “exceptional circumstances” that are deemed to justify such releases in U.S. based cases under Chapter 11.
The Fifth Circuit also developed an impressive new analytical framework for interpreting and reconciling the various provisions of Chapter 15. If adopted by courts in other jurisdictions, the Fifth Circuit’s systematic approach to the application of Chapter 15 could prove even more influential than the specific holdings of the case.
Posted in Chapter 15
SDNY Finds Direct Payments to Shareholders in a LBO Are Safe Harbored Under Section 546(e) of the Bankruptcy Code
On November 7, 2012, Judge Lewis A. Kaplan for the United States District Court of the Southern District of New York held that payments made in connection with a leveraged buyout to holders of privately held securities were safe harbored under section 546(e) of the Bankruptcy Code notwithstanding the fact that the payments passed directly from the purchaser to the seller without the use of any financial intermediary. AP Services LLP v. Silva, et al., Case No. 11-03005 (S.D.N.Y. Nov. 7, 2012). The decision comports with the trend among the United States Courts of Appeal, including the Second Circuit, to interpret section 546(e) broadly, and provides clarity regarding the section’s application to payments made in connection with a LBO that are wired directly to a shareholder’s bank account. Continue reading
Posted in Safe Harbors
U.S. Second Circuit Requires Argentina to Pay Defaulted Sovereign Debt Under “Equal Treatment” Clause
On 26 October 2012, the United States Court of Appeals for the Second Circuit upheld permanent injunctions designed to remedy Argentina’s breach of a promise to pay certain bondholders after a 2001 default on its sovereign debt. Relying on an “equal treatment” clause which provided that payment of the bonds ranked at least equally with Argentina’s other present and future bond issuances, the court held that Argentina could not discriminate against the defaulted bonds in favor of bonds issued in its 2005 and 2010 sovereign debt restructurings. Accordingly, the court enjoined Argentina from making payments on the 2005 and 2010 bonds without making comparable payments on the defaulted bonds. Continue reading
Posted in Analysis
Eighth Circuit Rules That a “Perpetual” Trademark Licensing Agreement Is an “Executory” Contract Subject to Rejection Under Bankruptcy Code Section 365
The United States Court of Appeals for the Eighth Circuit recently ruled that a perpetual, royalty-free, and exclusive trademark licensing agreement qualified as an executory contract subject to assumption or rejection under section 365 of the Bankruptcy Code. The decision creates new uncertainty for licensees under similar agreements, who may suddenly find that intellectual property rights they had taken for granted are at risk of termination in the event of a bankruptcy filing by the licensor. Lewis Bros. Bakeries Inc. v. Interstate Brands Corp. (In re Interstate Bakeries Corp.), 690 F.3d 1069 (8th Cir. 2012). Continue reading
Posted in Executory Contracts
Eighth Circuit Rules That a “Perpetual” Trademark Licensing Agreement Is an “Executory” Contract Subject to Rejection Under Bankruptcy Code Section 365
The United States Court of Appeals for the Eighth Circuit recently ruled that a perpetual, royalty-free, and exclusive trademark licensing agreement qualified as an executory contract subject to assumption or rejection under section 365 of the Bankruptcy Code. The Eighth Circuit’s ruling is seemingly at odds with a 2010 decision by the Third Circuit which found an extremely similar licensing agreement to be non-executory. These decisions may signal a circuit split on the issue, and in any event, create uncertainty for licensees who have acquired perpetual licenses in connection with an asset sale, and have otherwise been operating under the licensing agreement post-closing without incident. Continue reading
Posted in Executory Contracts
Fifth Circuit Finds that an Electricity Requirements Contract Is a “Forward Contract” Exempt from Bankruptcy Code’s Avoidance Powers
On August 2, 2012, the United States Court of Appeals for the Fifth Circuit held that a requirements contract for electricity is a forward contract for purposes of section 546(e) of the Bankruptcy Code and, therefore, settlement payments made under … Continue reading
Posted in Avoidance Actions/Fraudulent Transfers
Vitro Update: Texas District Court Clears the Way for Noteholders to File Involuntary Bankruptcy Petitions Against Vitro’s Subsidiary Guarantors
On August 28, 2012, the United States District Court for the Northern District of Texas vacated a series of bankruptcy court rulings that had blocked Vitro SAB’s noteholders from filing involuntary bankruptcy petitions against Vitro’s non-debtor subsidiary guarantors. In a decision authored by Chief Judge Sidney A. Fitzwater, the District Court struck down two of the subsidiary guarantors’ most important affirmative defenses to the involuntary bankruptcy, holding that petitioning creditors’ guaranty claims were not contingent and the subsidiary guarantors were not generally paying their debts as they came due. Knighthead Master Fund, L.P. v. Vitro Packaging LLC (In re Vitro Asset Corp.), No. 3:11-CV-263-D (N.D. Tex. Aug. 28, 2012). This marks another major victory for Vitro noteholders, who – as reported by Restructuring Review here – just weeks ago persuaded the Bankruptcy Court for the Northern District of Texas not to enforce a Mexican plan of reorganization that purported to release Vitro’s non-debtor subsidiaries of the same guaranties at issue in the District Court’s decision. Continue reading
Posted in Analysis
Court Denies American Airlines’ Motion to Reject CBAs; Provides Roadmap to Future Rejection
On August, 15, 2012, Bankruptcy Judge Sean H. Lane of the Southern District of New York denied American’s motion to reject its collective bargaining agreement with the Allied Pilots Association (“APA”) on narrow grounds. The Court held that American had not demonstrated that its proposals to eliminate contractual restrictions on pilot furloughs and enter into essentially unlimited codesharing arrangements were necessary to its reorganization. However, the court rejected the vast majority of the APA’s broader arguments, found that the CBA was “a burden that American is unable to maintain” and that American had met the standards for rejecting a CBA under section 1113 of the Bankruptcy Code. Specifically, the court held that (i) American could reject the CBA even though a potential merger between American and US Airways may have resulted in fewer sacrifices by the APA; (ii) American’s business plan was a sufficient basis to reject the CBA; (iii) American’s proposal was fair and equitable; and (iv) American negotiated in good faith. Accordingly, the court denied American’s motion without prejudice to remedying the furlough and codesharing shortcomings.
Continue reading
Posted in Section 1113 Issues
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
Posted in Analysis