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By: Peter N. Chiaro

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

The United States Bankruptcy Court for the Eastern District of Pennsylvania, in In re Brewery Park Associates, L.P.,[1] recently affirmed that the “absolute priority rule” is violated when a secured creditor receives more than the value of its claim under a chapter 11 plan.  Following the expiration of the debtor’s exclusivity, the Retirement Fund (“TRF”), a secured creditor, proposed its own chapter 11 plan.[2]  After failing to gain approval from all classes of impaired creditors, it sought to cramdown its proposed chapter 11 plan under section 1129(b).[3]  TRF’s plan allowed TRF to obtain a parcel of property that was worth, by its own estimate, between $5 million and $6 million in exchange for a credit bid of $2 million.[4]  Further, because TRF’s secured claim was roughly $5.2 million, TRF’s low credit bid would also give it deficiency claims against the loan guarantors.[5]  The court determined that TRF’s plan would likely overpay TRF’s allowed claim, and therefore the plan could not be confirmed because it was not fair and equitable.[6]

By: Ravi Vohra

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In Motors Liquidation Co.,[1] the Bankruptcy Court for the Southern District of New York denied class certification and disallowed two claims set forth by the Botha and Balintulo claimants (the “Class Claimants”) in General Motors Corporation’s (“Old GM”) chapter 11 proceedings.[2] The claims were first raised prepetition by 26 named plaintiffs in two separate groups, (the “Botha Plaintiffs” and the “Balintulo Plaintiffs”), and Old GM filed its chapter 11 petition while those lawsuits were still pending. The Botha and Balintulo Plaintiffs then filed proofs of claims against the corporation.[3] More than twelve months after Old GM’s chapter 11 filing and eight months after the bar date, the Class Claimants moved for class treatment and Old GM then sought to disallow the class claims.[4] Among other things, the Class Claimants alleged that they were victims of the infamous system of apartheid in South Africa, and that Old GM aided and abetted the perpetrators of the apartheid system in causing the claimants’ injuries.[5]

 By: David N. Saponara

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

By: Edmund Witter
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently, in Old West Annuity and Life Ins. Co. v. Apollo Group,[1] the Eleventh Circuit held state law determined whether a court could pierce the corporate veil under an alter ego theory even though a federal tax lien was at issue.[2] In reaching its holding, the Eleventh Circuit had to decide whether the need for a uniform federal rule justified applying the federal common law standard for determining alter ego liability or if state law applied by virtue of a state’s right to define property interests of its taxpayers.[3]

By: Melissa Schneer
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently, in Schleicher v. Wendt,[1] a magistrate judge in Indiana held that a post-bankruptcy corporation that acquired substantially all of the pre-bankruptcy corporation’s business operations also acquired the pre-bankruptcy corporation’s right to assert the attorney-client privilege.[2]  Schleicher involved a class action against four senior executives of a company, based on that company’s decline into bankruptcy.[3] The plaintiffs moved to compel the production of thousands of documents, which the defendants claimed were privileged.[4] The parties disputed whether control of the pre-bankruptcy corporation (the “Old Corporation”) — accompanied by the attorney-client privilege — passed through bankruptcy proceedings to the post-bankruptcy corporation (the “New Corporation”).[5] The court noted that the reorganized New Corporation did not obtain every aspect of the Old Corporation.[6] The New Corporation, however, did acquire all of the Old Corporation’s assets, sources of revenue and expense, and management as part of the reorganization.[7] As a result, the court opined that the New Corporation essentially gained control over the Old Corporation’s business operations.[8] Consequently, the court held that the New Corporation acquired the Old Corporation’s right to assert the attorney-client privilege.[9]

By: Jon H. Ruiss, Jr., CPA
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently, in In re South Beach Securities, Inc., the Seventh Circuit affirmed the old adage that a bankruptcy court could not confirm a chapter 11 plan when the plan’s sole purpose is designed to make use of the debtor’s net operating losses (NOLs) as a tax benefit for the creditor.[1] The plan intended to obtain a tax deduction for the debtor’s sole creditor through the plan.[2] In a scolding opinion by Judge Posner, the court held that the plan violated of section 1129(d), and therefore, was proposed in bad faith.[3]  Section 1129(d) states that a plan cannot be confirmed when its principal purpose is tax avoidance.[4]

By: Daniel J. Opisso
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently, in In re Visteon, the Third Circuit held that a chapter 11 debtor had to follow section 1114 of the Bankruptcy Code when terminating a retiree benefit plan, notwithstanding the terms of an existing collective bargaining agreement (“CBA”) that permitted unilateral termination.[1] At the time Visteon filed for chapter 11, the CBA provided that retired employees would receive medical benefits until death.[2] However, the CBA gave Visteon the discretionary power to unilaterally terminate or modify any retiree benefits at any time.[3] Despite Visteon’s apparent reservation of the right to terminate retiree benefits, the Third Circuit held that Visteon could not do so in its bankruptcy case without complying with section 1114, which sets forth a specific procedure for termination or modification of retiree benefits.[4]