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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
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Author Archives: Audrey Aden Doline
Vitro: Chapter 15 and the Limits of Comity: Texas Bankruptcy Court Refuses to Enforce Third Party Release Provisions in Mexican Plan of Reorganization
On June 13, 2012, Judge Harlin D. Hale of the United States Bankruptcy Court for the Northern District of Texas refused to enforce provisions of a Mexican plan of reorganization that purported to extinguish guarantees by the debtor’s non-debtor subsidiaries. In refusing to enforce the non-debtor release, Judge Hale held both that the release of non-debtor guarantors was contrary to United States public policy and that the release did not merit enforcement under the specific criteria of chapter 15 for granting relief to a foreign debtor. The decision demonstrates that, while comity is the primary consideration governing chapter 15 cases, it is not without limit. The decision should also indicate to creditors that third party releases of non-debtor guarantors created in cases pending outside the U.S. are not likely to be enforced in the United States. Vitro, S.A.B. de C.V. v. ACP Master, Ltd. (In re Vitro), No. 11-33335-HDH-15, 2012 Bankr. LEXIS 2682 (Bankr. N.D. Tex. June 13, 2012). Continue reading
Posted in Chapter 15
What’s Yours is Mine, and What’s Mine is Mine? SDNY Expands the “Unfinished Business” Doctrine to Include Non-Contingency Client Matters In Possible Dewey Preview
The recent chapter 11 case of the storied New York law firm, Dewey & LeBoeuf LLP, will raise a host of issues attendant to the dissolution of a modern day “big law” firm partnership. Chief among these issues is likely to be whether the profits earned by former Dewey partners in completing Dewey’s open client matters belong to Dewey or the former Dewey partners. Continue reading
Posted in Avoidance Actions/Fraudulent Transfers
The Devil (Dog) ® is in the Details: Bankruptcy Court Denies Hostess’s Motion to Reject Collective Bargaining Agreements on Narrow Factual Grounds
The recent bankruptcy case of Hostess has centered on Hostess’s attempts to reject collective bargaining agreements with its unions. Hostess has emphasized that realigning labor costs is essential to its ability to successfully reorganize. Section 1113 of the Bankruptcy Code sets forth detailed requirements that a debtor must meet to modify or reject CBAs. Bankruptcy courts’ ultimate decision to authorize rejection of a CBA frequently turns on a detailed examination of the evidence presented in support of the rejection motion. This post discusses the recent ruling of Judge Robert Drain of the United States Bankruptcy Court for the Southern District of New York denying Hostess’s motion to reject several CBAs with local affiliates of the International Brotherhood of Teamsters. Although the court did not issue a written opinion of its decision, we have reviewed and analyzed the lengthy hearing transcript. See Transcript of Hearing, In re Hostess Brands, Inc., No. 12-22052 (RDD) (Bankr. S.D.N.Y. May 14, 2012). Judge Drain analyzed extensively the parties’ proposed modifications to the CBAs. Although he found that most of the key modifications related to withdrawing from multiemployer pension plans were necessary and thus permitted under applicable law, he did not authorize the rejection because the Teamsters had cause to reject Hostess’s final proposal. Judge Drain’s holding turned on a relatively minor point of fact pertaining to a one percent difference in proposed EBITDA margin – an issue only addressed briefly in the pleadings and the ruling. Continue reading
Posted in Analysis
Frenville – Gone But Not Forgotten: Third Circuit Prohibits Retroactive Application of Grossman’s
The ability to discharge debts (i.e., liability on a claim) is essential to the fundamental goal of chapter 11 of the Bankruptcy Code – providing debtors with a fresh start by resolving all claims that arose before confirmation of the debtor’s plan of reorganization. In determining the universe of debts eligible for discharge, Third Circuit courts labored for many years under Avellino v. M. Frenville Co. (In re M. Frenville Co.), 744 F.2d 332 (3d Cir. 1984), which held that a claim arises when a right to payment accrues under applicable nonbankruptcy law. Courts in other jurisdictions almost unanimously rejected Frenville’s “accrual” test because it seemed to be at odds with the Bankruptcy Code’s broad definition of “claim”. Continue reading
Posted in Claims
Benefit of the Bargain: SDNY Bankruptcy Court Affirms Presumption of Contractual Default Rate for Oversecured Creditors’ Postpetition Interest
On April 9, 2012, Judge Stuart M. Bernstein of the U.S. Bankruptcy Court for the Southern District of New York held that an oversecured creditor in a single asset real estate case was entitled to receive prepetition and postpetition interest at the contractual default rate, but declined to allow late payment premiums provided under the loan documents. 785 Partners LLC, Case No. 11-13702 (Bankr. S.D.N.Y. Apr. 9, 2012). The case reaffirms SDNY bankruptcy courts’ deference to the contractual default rate for calculating postpetition interest due to an oversecured creditor when the debtor is solvent and equitable considerations favor imposition of the default rate, a topic which we first discussed in the context of General Growth Properties’ chapter 11 cases. 785 Partners also provides greater clarity in the Southern District of New York regarding the allowance of prepetition interest and late payment charges. Continue reading
Posted in Claims
What’s In a Name? Fifth Circuit Rejects Formulaic “Legal Title” Standard of Ownership In Favor of “Control” Test
Asserting a fraudulent transfer claim is one of the most powerful tools a debtor in possession or trustee has under the Bankruptcy Code. Of course, a debtor can only seek to avoid a transfer of property in which it had an interest. On January 27, 2012, in a matter of first impression, the United States Court of Appeals for the Fifth Circuit considered whether a debtor had to establish that it had held legal title to a bank account in order for the debtor to demonstrate that it had transferred an “interest in property of its estate” for purposes of pursuing a fraudulent transfer claim. Rejecting a bright-line rule requiring formal legal title to property, the Fifth Circuit looked to state law in determining that a debtor could prove ownership of the bank account through control over that account. By virtue of its control over the account, the Fifth Circuit held that the debtor could bring a fraudulent transfer claim to seek return of that property (or equivalent damages). Guillermo De La Pena Stettner, et al. v. Steve Smith (In re IFS Financial Corp.), No. 10-20670 (5th Cir. Jan. 27, 2012). Continue reading
Posted in Avoidance Actions/Fraudulent Transfers
RadLAX Review: Summary of Respondents’ Brief in Supreme Court Credit Bidding Case
As part of our continuing coverage of RadLAX Gateway Hotel, LLC v. Amalgamated Bank, this is one of a series of posts summarizing the briefs filed with the Supreme Court. This post summarizes the respondents’ brief, which urges the Court to affirm the decision of the Seventh Circuit prohibiting a debtor from pursuing confirmation of a plan that provides for the sale of certain assets free and clear of liens and encumbrances without permitting a secured creditor the opportunity to credit bid. Continue reading
RadLAX Review: Summary of Petitioners’ Brief in Supreme Court Credit Bidding Case
As part of our continuing coverage of RadLAX Gateway Hotel, LLC v. Amalgamated Bank, this is one of a series of posts summarizing the briefs filed with the Supreme Court. This post summarizes the petitioners’ brief, arguing that section 1129(b)(2)(A) of the Bankrutpcy Code permits confirmation of a plan that denies secured creditors their right to credit bid. Continue reading
Posted in Plans/Confirmation, RADLAX
Structured Dismissals (Part II of II): Case Studies
Part I of this series provided an overview of structured dismissals, and discussed how and when structured dismissals are used by chapter 11 participants. This post, the second part of the series, discusses several examples of structured dismissals from recent chapter 11 cases. The cases summarized below provide further insight into the types of cases and circumstances in which a structured dismissal may be appropriate. Although the facts and circumstances of the cases vary, all of the cases share a common theme – a structured dismissal afforded the parties in interest a more effective, efficient, and economical conclusion to the case than other potential exit strategies. Continue reading
Posted in Plans/Confirmation
Structured Dismissals (Part I of II): Another Possible Chapter 11 Exit Strategy to Consider After a Sale of Substantially All Assets
As courts and commentators alike have observed in recent years, sales of substantially all assets pursuant to section 363 of the Bankruptcy Code prior to confirmation of a chapter 11 plan have become common practice in large-scale corporate bankruptcy cases. Chapter 11 debtors who effectuate such sales traditionally must pursue one of three possible options for concluding the chapter 11 case: (i) confirmation of a plan of reorganization or liquidation, (ii) conversion of the case to a case under chapter 7 of the Bankruptcy Code, or (iii) entry of an order dismissing the case and returning all parties to their respective state law rights and remedies. However, when these courses of actions are not feasible or otherwise are simply not appropriate or practical under the circumstances, debtors are increasingly turning to structured dismissals as an alternative chapter 11 exit strategy. This blog post provides an overview of structured dismissals, and discusses how and when they are used. Part II of this series will discuss several examples of structured dismissals from recent chapter 11 cases. Continue reading