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An oversecured creditor is generally entitled to post-petition interest, to the extent provided for under a loan agreement, as a part of its secured claim in a bankruptcy case.[1] However, courts are split as to (1) whether or not the same applies to interest incurred at a contracted default rate when curing a monetary default through the debtor’s plan of reorganization, and (2) whether equitable considerations allow courts to disallow interest at the agreed-upon, contractual default rate, des
Secured creditors whose collateral includes its borrowers’ accounts are empowered by Article 9 to collect money that is owed to borrowers from their borrowers’ account debtors, by a simple notice process. The secured creditor can notify account debtors of the security interest and advise them that they should pay the secured creditor directly, instead of paying the borrower.
In this time of COVID-19, creditors and debtors alike have looked for ways to address the financial squeeze the pandemic has imposed on the global economy. On the one hand, debtors are likely to look for more time for their business operations to return to “normal.” On the other hand, creditors are likely to look for certainty of results in an otherwise uncertain time.
It may seem counterintuitive for banks and other lenders to provide loans to companies in bankruptcy, but they often do. All companies, especially those in bankruptcy, need liquidity to continue operating. Ensuring the availability of cash is one of the most important considerations in a chapter 11 reorganization, because debtors are often unable to reorganize without adequate cash flow.
This year has been like no other. With the rest of the world, ABI’s Secured Credit Committee was jilted by the speed at which our in-person conferences and activities came to a halt. At the same time, we marveled at how efficiently the Annual Spring Meeting was retooled for virtual happy hours, networking opportunities and webinars that have lasted through these trying months. Alas, our ASM panel prepared with the Claims Trading Committee, “Claims Traders: Sharks or Saints?,” was lost in the process, but in the early days of the pandemic, who knew what would come?
