Wednesday, May 30, 2012

Tousa: A Cautionary Tale for Lenders

On May 15, 2012, the Eleventh Circuit Court of Appeals issued its long-awaited decision in the In re: Tousa, Inc.  fraudulent transfer litigation.  The Court affirmed the Bankruptcy Court holding that the “Transeastern Lenders” received fraudulent transfers when Tousa, Inc., the parent company paid a settlement of $421 million dollars to the Transeastern Lenders which was funded by a loan from “the New Lenders” secured primarily by the assets of several Tousa subsidiaries, “Conveying Subsidiaries,” who were not themselves legally obligated to the Transeastern Lenders.

The Tousa decision is a cautionary tale.  Companies that are dealing with troubled debtors who are receiving repayment of substantial debts will have to be wary and exercise due diligence and consider their potential exposures for fraudulent transfers after this decision.

Tuesday, May 29, 2012

How Safe Is Safe Harbor?

In the run-up to the spectacular Lehman Brothers Holdings Inc. bankruptcy case and the immediate aftermath of the filing, JP Morgan Chase (“JPMC”) received over $8.6 billion dollars from the Lehman entities.  As a result of those transfers the Lehman entities and their Official Committee of Unsecured Creditors brought suit against JPMC to recover the transfers.

On April 19, 2012, the Honorable James M. Peck entered his opinion granting in part and denying in part JPMC’s motion to dismiss.  The extensive and lengthy decision contains three broad groups of holdings.  First, the Court held that the transfers could not be avoided as either preferences or constructively fraudulent transfers because the safe harbor of 11 U.S.C. §546(e) immunizes the transfers from avoidance under those provisions as they constituted settlement payments made by a covered entity for the benefit of a financial institution in connection with a securities contract.  While the Court noted that the occurrence of obligations was not immunized, that was a “pyrrhic victory” for the plaintiffs as the transfers themselves would still be exempt from avoidance (slip op at 45).

Friday, May 25, 2012

Stern v. Marshall: Second Circuit Finds Holding "Narrow"

The United States Court of Appeals for the Second Circuit recently weighed in on the scope of the United States Supreme Court’s influential opinion in Stern v. Marshall, 564 U.S. 2 (2011).  The case before the Second Circuit, In re Quigley Co., 2012 U.S. App. LEXIS 7167 (2d Cir. Apr. 10, 2012), didn't require the Second Circuit to analyze the "precise contours of Stern."  But, significantly, the Second Circuit observed that Stern's holding was "narrow."

In re Nortel Networks: An Update

Updated from previous post.

On April 20, 2012, the Nortel Networks UK Pension Trust Limited (the “Trustee”), as Trustee of Nortel Networks UK Pension Plan, and the Board of the Pension Protection Fund (the “Board,” together with the Trustee, the “Petitioners”) petitioned the United States Supreme Court to review the Third Circuit’s ruling in In re Nortel Networks Inc., 669 F.3d 128 (3d Cir. 2011), that the “police power” exception to the automatic stay as set forth in Section 362(b)(4) of Bankruptcy Code did not apply to the situation at hand.  The Third Circuit’s opinion can be found here.

Tuesday, May 8, 2012

Cross-border Insolvency: The European Court of
Justice on Determining the Centre of Main Interests

The European Court of Justice (“ECJ”) in Interedil Srl (in liquidation) vFallimento Interedil Srl, Intesa Gestione Crediti SpA has provided further guidance on determining a debtor company’s centre of main interests and on interpreting the term “establishment” under the Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (“Regulation”). The court reiterated that the company’s place of registration is not always the right jurisdiction in which to issue insolvency proceedings.  

Monday, May 7, 2012

A Director's Worst Nightmare

If you serve as an officer or director you probably assume that if things go badly you will be protected by directors and officers insurance.  But if things go very badly and bankruptcy ensues, you may not have the protection you thought you had.

Single Asset Real Estate Cases

“The court recognizes the difficulties presented by § 1129(b)(2)(A) for real estate developers trying to reorganize, but Congress has decided that debtors must bear the risk of reorganization by contributing additional capital and/or pledging additional collateral to their undersecured creditors before debtors may enjoy the benefits of a confirmed plan.”

                                                       In re Saguaro Ranch Development Corporation,
                                                      2011 WL 2182416 (Bankr. D. Ariz. June 1, 2011)

Saturday, May 5, 2012

Assigning the Unassignable: Creating an Asbestos
Liability Trust by Rewriting Contracts

Normally bankruptcy does not expand pre-petition contracts or impose different risks on contracting parties, but it appears that when the courts are firmly convinced of the public good of creating an asbestos trust, insurance contracts at least can be re-written.