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Bankruptcy, Restructuring and Creditors’ Rights

Bankruptcy, Restructuring and Creditors Rights

Chapter 9 – More than just Orange County and Detroit

A Chapter 9 bankruptcy offers protection to a financially-distressed municipality so that it may develop a plan for addressing its debts. A product of the Great Depression, bankruptcy protection for municipalities was first enacted in 1934.  However, the Supreme Court held the act unconstitutional as an improper interference with the sovereignty of states. See Ashton v. Cameron County Water Improvement Dist. No. 1, 298 U.S. 513 (1936). Congress subsequently passed a revised Municipal Bankruptcy Act in 1937, which was eventually upheld by the Supreme Court. See United States v. Bekins, 304 U.S. 27 (1938).

Changes to Chapter 12 Bankruptcy May Increase Farmers’ Ability to Reorganize in Bankruptcy

Farmers attempting to reorganize under Chapter 12 of the Bankruptcy Code may propose selling land as a means of generating cash to pay creditors. This sale creates a large capital gains tax, as the cost basis for the land is likely low. That capital gains tax has priority over general unsecured creditors, and the farmer needs to pay that capital gains tax in full to get a Chapter 12 plan confirmed.

Supreme Court Adopts Restrictive Minority View of Section 546(e) Safe Harbor Regarding Certain Securities Payments

On February 27, 2018, a unanimous Supreme Court held in Merit Management Group, LP v. FTI Consulting, Inc. (link here) that an otherwise-avoidable transfer is not subject to the safe harbor in Section 546(e) (which provides, in relevant part, a trustee may not avoid a transfer that is a “settlement payment . . . made by or to (or for the benefit of) a . . . financial institution” or that “is a transfer made by or to (or for the benefit of) a . . . financial institution . . . in connection with a securities contract”) of the Bankruptcy Code merely because funds flow through covered financial entities.  Rather, the availability of the Section 546(e) safe harbor depends on the particular transfer sought to be avoided.

The Bankruptcy Venue Reform Act of 2018

In January 2018, Senators John Cornyn (R-TX) and Elizabeth Warren (D-MA) introduced a bill that would require corporate debtors to file for bankruptcy protection in the district in which their principal assets or principal place of business is located. In other words, the Bankruptcy Venue Reform Act of 2018 would eliminate a corporate debtor’s ability to commence a case in its state of incorporation if the state of incorporation is neither the debtor’s principal place of business nor the location of its principal assets. Moreover, the bill would do away with the so-called “Affiliate Rule” that allows corporate debtors to file in any district where an affiliate has a pending bankruptcy case. If signed into law, the act would also put an end to protracted, expensive battles over venue: judges would be required to make a decision on a venue transfer request within fourteen days of the objecting party’s request.

Limited Liability Company Interests as Collateral: Remedies on Default

Various business formations and financial transactions utilize alternative entity forms, such as limited liability companies (“LLC”), limited partnerships, master limited partnerships, limited liability partnerships, limited liability limited partnerships—you get the idea. In turn, commercial borrowers may offer—and lenders may request—interests in such entities as collateral. This blog post focuses on LLC membership interests (“LLC Interests”) as collateral.

Proceeds from Insurance Settlement Outside the Scope of Article 9

The Bankruptcy Appellate Panel for the First Circuit recently held that a creditor holding a perfected security interest in accounts and payment intangibles did not have a perfected security interest in the proceeds of an insurance settlement.

$5.15 Billion Settlement for Environmental Liabilities – Largest Ever Recovery

Earlier today, April 3, 2014, the U.S. Department of Justice announced its largest ever environmental enforcement recovery case involving a $5.15 billion settlement, $4.4 billion of which will go to environmental cleanup and claims. The settlement, with Kerr-McGee Corporation and certain of its affiliates, along with their parent company Anadarko Petroleum, arose from the 2009 bankruptcy of Tronox, Inc., and a December 2013 ruling by the federal bankruptcy court finding a fraudulent transfer of assets to avoid paying environmental cleanup obligations.

Insurance Remains Property of Dissolved Corporation Even After Wind-up, According to Delaware Supreme Court

As Delaware has often been selected as a preferred place of incorporation by U.S. businesses, and consequently the venue for dissolution and bankruptcies, the recent decision by the Delaware Supreme Court, In the Matter of Krafft-Murphy Co., Inc., No. 85, 2013 (Del. Nov. 26, 2013), holding that insurance contracts remained property of the dissolved corporation may have significant implications for “orphan shares” at co-disposal, environmental remediation sites, as well as for non-environmental liabilities. As in other states, otherwise formerly insolvent corporations may find themselves once again parties to litigation as potential creditors seek to attach insurance assets.

Impact of Chapter 11 Bankruptcy on Liens

In the Chapter 11 bankruptcy case of Acceptance Loan Company, Inc. v. S. White Transportation, Inc., the Fifth Circuit recently held that a secured creditor’s lien remained in place after the confirmation of the debtor’s plan, despite the fact that the secured creditor received bankruptcy notices and took no action to protect its interest until after the plan was confirmed.

What Now? What You and Your Client Should Be Doing if a Key Player in a Construction Project Files For Bankruptcy

The following information should serve as a guide, knowing that each situation is different and will require a specific plan for recovery.

The Intersection of Construction Law and Bankruptcy

In the current economic landscape, many project participants are filing bankruptcy. For the practitioner, the in-tersection between construction law and bankruptcy may be unfamiliar. This article discusses the common problems encountered and practical considerations that arise when a construction project participant files bankruptcy. The relevant issues will be addressed in five parts, and in roughly the order in which they are encountered during the bankruptcy process.

Is It Time To Revise Your Loan Policy?

A written loan policy is evidence that a bank has established a process to identify, measure and control risks in the lending arena. Therefore, an incomplete or inadequate policy may raise regulatory concerns with respect to the bank’s risk management practices.