Editor’s Note: The Secured Credit Committee recently hosted a webinar titled “Understanding Make-Whole and No-Call Provisions: Key Takeaways From Recent Decisions.” This webinar discussed recent cases such as AMR Corp. (American Airlines), School Specialty, GMX Resources and Chemtura. Click here to review this webinar.
In a dispute regarding entitlement to proceeds resulting from an auction of livestock in possession of a dairy farmer/debtor,[1] the U.S. Court of Appeals for the Sixth Circuit issued an order on Aug. 14, 2014, in favor of a dairy cattle lessor, despite the secured creditor’s pre-existing security interest in all livestock that is “currently owned or hereafter acquired.” The court found that the dairy cattle leases were not disguised security agreements, as the bankruptcy and district courts in Kentucky had concluded, but were instead true leases.
Courts have long grappled with the question of whether “stripping” an unsecured junior lien is permitted by § 506 of the Bankruptcy Reform Act of 1978 (the Bankruptcy Code).[1] In 1992, in the case of Dewsnup v. Timm, the Supreme Court granted certiorari on the topic, holding that “stripping down” partially unsecured junior liens was not permissible under the plain meaning of the Code.[2] Recently, however, the practical implications of the intersection of § 506(a) and (d) of the Code have been in flux as courts across the country weigh in on the distinction between “stripping down” and “stripping off.”
A recent decision by Bankruptcy Judge Brendan Linehan Shannon of the U.S. Bankruptcy Court for the District of Delaware, In re Optim Energy, LLC, et al.,[1] highlights a shift in Delaware recharacterization jurisprudence. In that case, Walnut Creek Mining Co., debtor Optim Energy’s largest unsecured creditor, sought standing to pursue recharacterization, equitable subordination and fiduciary duty claims on behalf of the estate against the secured lenders, who were also equity-holders, after no committee of unsecured creditors was appointed.
Editor’s Note: ABI hosted a webinar entitled “The 1111(b) Election: Advanced Mathematics and Strategies” in June. Visit ABI’s Distance Learning site at cle.abi.org to purchase recordings of this webinar.
By nearly any measure, the chapter 11 cases of Hawker Beechcraft and its affiliates (the debtors) were a significant success. The cases began as a standalone reorganization predicated upon a restructuring support agreement (RSA) among the debtors’ senior lenders and noteholders, which soon thereafter gained the support of the official creditors’ committee. The cases then switched over to a sale process, and when that bogged down the debtors, the lenders and the committee seamlessly restarted the standalone reorganization based on the RSA.
When making a commercial loan, financial institutions typically require commercial borrowers to provide additional security by obtaining personal guarantees for the repayment of the outstanding debt. When the commercial borrower defaults on the loan, the financial institution looks to the guarantors for repayment, in addition to taking all steps necessary to liquidate the collateral that has been pledged by the borrower. Faced with significant monetary judgments, many guarantors file bankruptcy proceedings to discharge their guaranty obligations to the financial institution.
A borrower’s deposit accounts are attractive collateral for lenders. Deposit account funds are essentially cash, and if the lender maintains the account, then the lender can reach the funds without effort. A borrower’s bankruptcy, however, creates a dilemma for deposit account lienholders, and a recent case counsels lenders to obtain adequate protection before turning over deposit account funds to the bankruptcy estate.
In September 2008 as Lehman Brothers Holding Inc. was reaching a state of crisis, it looked like the company might be able to avoid bankruptcy by completing the sale of certain assets to Barclays PLC. The sale would have provided Lehman with much-needed capital and additional time to plan for an orderly wind-down. After days of frenzied negotiations involving Lehman, Barclays and U.S. regulatory entities, a deal was agreed to in principal.
Mortgage Electronic Registration Systems Inc. (MERS) is the leading electronic registry for mortgage lenders, and is linked more and more each day to the foreclosure crisis. MERS has been recently challenged in state foreclosure actions, frequently to different ends creating a “patchwork of conflicting laws and court decisions in different states.”[1]