Zone of Insolvency

Zone of Insolvency

Category Archives: U.S.

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“Deepening Insolvency” Staggers On

Posted in U.S.
The Third Circuit Court of Appeals recently passed on a chance to join numerous other federal and state jurisdictions in rejecting “deepening insolvency” as an independent tort, leaving the doctrine weakened, but still technically viable in the significant bankruptcy arena. However, in In re Lemington Home for the Aged, the Court did strongly indicate that… Continue Reading

Don’t Forget to Object!

Posted in U.S.
On January 23, 2015, the Eleventh Circuit recognized the res judicata effect of provisions contained in a bankruptcy plan of reorganization that released all claims against a third-party guarantor. In deciding In re FFS Data, Inc., the court examined (i) the plain language of the plan provisions to determine whether a particular claim was included… Continue Reading

Third Time’s the Charm: Supreme Court May Finally Clarify Bankruptcy Courts’ Power

Posted in U.S.
On January 14, 2015, the Supreme Court of the United States heard oral argument in Wellness International Network, Limited v. Sharif, a case that gives SCOTUS the opportunity to finally clarify the constitutional limits of bankruptcy courts’ decision-making power raised by its 2011 decision in Stern v. Marshall. But as we saw with last year’s… Continue Reading

A Refresher on Constitutional Mootness and Its Application to Lift-Stay Motion Appeals

Posted in U.S.
Constitutional mootness is a threshold question for determining whether a court has jurisdiction over an appeal. It arises from the “case or controversy” requirement under Article III of the U.S. Constitution – if no “case or controversy” exists for which the court may grant effective relief, the court lacks jurisdiction and must dismiss the appeal… Continue Reading

Determining the Cramdown Interest Rate: The Burden is on the Creditor

Posted in U.S.
Following Judge Drain’s decision in Momentive, many in the bankruptcy world have written about and discussed the issue of how to determine the appropriate interest rate that should be paid to secured creditors in the context of a Chapter 11 cramdown (the so-called “cramdown interest rate”). While many questions have been asked and remain unanswered,… Continue Reading

Bubble Bursts on Former Dot-Com Millionaire Debtors Seeking to Subordinate Claim of Ex-Partner

Posted in U.S.
Bankruptcy Code section 510(b) provides for mandatory subordination of any claims “arising from,” among other things, the purchase or sale of a security. It is an expansive provision that courts have interpreted broadly, causing some commentators to wonder: “Are there any limits to mandatory subordination under section 510(b)?” In a decision entered last week in… Continue Reading

Second Circuit Applies Safe Harbor to Protect Withdrawals Made by Madoff Customers

Posted in U.S.
Focusing on the plain language provided in Bankruptcy Code section 546(e), the Court of Appeals for the Second Circuit this week held that customers of the now defunct Bernard Madoff Investment Securities LLC can retain funds they had withdrawn from their customer accounts before the Madoff firm was placed into liquidation.  Irving Picard, the trustee… Continue Reading

Lightsway Litigation Services, LLC v. Yung: A Further Study of Fiduciary Duties

Posted in U.S.
Following up last week’s post on fiduciary duties, we review another bankruptcy decision, also in Delaware, that provides a good refresher on the fiduciary duties of directors and officers. In dismissing claims that officers and directors had breached fiduciary duties, the bankruptcy court in Lightsway Litigation Services, LLC v. Yung (In re Tropicana Entertainment, LLC)… Continue Reading

Gavin v. Tousignant: A Refresher on How Bankruptcy Courts Interpret Officers’ and Directors’ Duties

Posted in U.S.
Corporate officers and directors who want to understand when a bankruptcy court may second-guess their decisions if their company fails need look no further than the Delaware bankruptcy court’s recent decision in Gavin v. Tousignant (In re Ultimate Escapes Holdings, LLC). Failed Business, Failed Merger Ultimate Escapes was formed in September 2009 to operate a… Continue Reading

Provisional Liquidators’ Proper Planning Enabled Chapter 15 Recognition

Posted in U.S.
At times, United States courts have been reluctant to grant recognition to foreign proceedings involving offshore “exempted” companies under Chapter 15 of the Bankruptcy Code. For example, the United States Bankruptcy Court for the Southern District of New York denied a request for recognition of the Cayman Islands liquidation of certain Bear Stearns funds. Following… Continue Reading

Recharacterization: When Your “Loan” Becomes a “Capital Contribution”

Posted in U.S.
Insiders who support their business enterprises in the form of loans should take comfort in a recent decision by the Bankruptcy Court for the Western District of Virginia in which the bankruptcy court declined to recharacterize a member’s loans to a limited liability company as capital contributions. Financial transactions in which an insider advances money… Continue Reading

Stop in the Name of Equity: Second Circuit Affirms Dismissal of Appeals in Chapter 11 Liquidation Proceedings as Equitably Moot

Posted in U.S.
In a case of first impression, the Second Circuit recently held that the doctrine of equitable mootness is applicable in appeals arising from Chapter 11 liquidations and affirmed the decision of the Southern District of New York to dismiss the appeals of three decisions in the Chapter 11 liquidation proceedings of the former book retailer… Continue Reading

Momentive Noteholders’ Request to Change Vote Denied – You can’t have your cake and eat it too.

Posted in U.S.
A recent decision in the Momentive cases explores the limitations of changing a vote pursuant to Bankruptcy Rule 3018. In that case, the first and 1.5 lien noteholders  initially voted to reject the debtors’ proposed plan of reorganization in order to pursue their claim for recovery of a “make-whole” payment they argued they were entitled… Continue Reading

An Apparent Victory for Subsequent Transferees

Posted in U.S.
The Bankruptcy Code gives broad avoidance powers to debtors, allowing them to “unwind” transactions occurring relatively shortly before the bankruptcy filing in order to recover funds for the benefit of the debtor’s creditors. Indeed, debtors may in certain circumstances recover from subsequent transferees of the initial transferee. These broad avoidance and recovery powers are generally… Continue Reading

A Refresher on Lender Liability

Posted in U.S.
Lenders should take comfort in a recent bankruptcy court decision in Maryland dismissing a creditor’s attempt to equitably subordinate a construction lender’s claim against their common debtor. See Atlantic Builders Group, Inc. v. Old Line Bank, et al. (In re Prince Frederick Investment, LLC), Bk. No. 12-20900-TJC, Adv. No. 13-00461, (Bankr. Md. September 9, 2014).… Continue Reading

Circuit Split Deepens in Wake of Arkison

Posted in U.S.
As we previously discussed, the Supreme Court’s decision in Executive Benefits Insurance Agency v. Arkison, dodged the question of whether litigants can consent to final adjudication of “Stern problem” claims by a bankruptcy court. Two recent decisions in the Fifth and Ninth Circuit have revealed the scope of the uncertainty left in Arkison’s wake and… Continue Reading

Status of Stockton Pensions Still In Limbo

Posted in U.S.
Pension holders and other creditors of the City of Stockton, California (“Stockton”), as well as other interested parties following Stockton’s bankruptcy case (No. 12-32118, Bankr. E.D. Ca.), must wait until October for a resolution of the dispute surrounding Stockton’s treatment of the California Public Employees’ Retirement System (“CalPERS”) pension plan in its plan of adjustment.… Continue Reading

Arkison: A Supreme Dodge

Posted in U.S.
On June 9, 2014, the Supreme Court handed down a decision in Executive Benefits Insurance Agency v. Arkison—a case that was expected to answer fundamental questions about the constitutional limits of bankruptcy courts.  The case had the potential to either dramatically reshape, or strongly reaffirm existing fraudulent transfer litigation law and practice.  Instead, in a… Continue Reading

Limiting the Right to Credit Bid: A New Trend?

Posted in U.S.
Earlier this month, in the In re The Free Lance-Star Publishing Co. bankruptcy cases, Judge Huennekens of the Bankruptcy Court for the Eastern District of Virginia issued a memorandum opinion which laid out the Court’s decision limiting the right of a secured creditor to credit bid.  The Court, pointing to a “perfect storm” of factors… Continue Reading

Break-Up Fees Available to Lenders too?

Posted in U.S.
A break-up fee is typically used to encourage a party to act as the initial or “stalking horse” bidder in connection with a sale under section 363 of the Bankruptcy Code.  Under certain circumstances, a potential debtor may agree to pay a break-up fee to a prospective lender to entice the lender to provide the… Continue Reading

Carney v. CitiMortgage, Inc. — Not Everything is a Stern Problem

Posted in U.S.
Since the Supreme Court of the United States shook up the bankruptcy litigation world with its decision in Stern v. Marshall, bankruptcy practitioners have been finding “Stern problems” everywhere they look.  A straightforward decision in Carney v. CitiMortgage, Inc., however, reminds us that, as broad as Stern may be, bankruptcy courts retain full authority to… Continue Reading