In bankruptcy cases, general unsecured claims can be found near the back of the line and are often paid pennies on the dollar. Having a perfected first lien on valuable collateral is certainly preferable to a mere general unsecured creditor, but if a creditor does not have such security, is it always regulated to waiting months for its pro rata share of whatever crumbs are left after paying other claimants? Not necessarily.
Although a claim involving only goods sold to the debtor qualifies as an administrative expense under § 503(b)(9)[1] of the Bankruptcy Code, courts are split as to whether, and to what extent, this section covers so-called “hybrid” claims—those involving both goods and services transactions.
If your company is a member of the official committee of unsecured creditors (committee) and the bankruptcy your company is involved with is nearing the time of the confirmation of a liquidation plan, this article may be of interest to you. By now, you have gotten some idea of where the bankruptcy is heading. The debtor may have already sold some of the assets and debtor’s counsel may have identified major issues that need to be negotiated or litigated, and the debtor’s financial adviser has probably developed a comprehensive list of the many claims against the estate.
In the wake of the global credit crisis, the U.S. housing market plummeted with values declining as much as 50 percent and home foreclosures at record highs. With lower asset values and frozen credit markets, it became difficult, if not impossible, for U.S. homebuilders to continue business operations. Many U.S. homebuilders, particularly those who operated on a highly-leveraged basis, have been forced to liquidate assets to pay off lenders. TOUSA Inc. (and its subsidiaries) is one of the largest U.S. homebuilders to seek chapter 11 protection. The TOUSA ruling on Oct.
The most accessible defense to a preference claim is the “new value” defense codified at 11 U.S.C. §547(c)(4). If the requirements of §547(c)(4) are met, this defense enables a creditor to avoid preference liability where it has already received a preferential transfer by subsequently providing new value to the debtor. The new value defense need not be proven with the assistance of expert testimony and is generally subject to analysis in a trade creditor’s credit department before the claim is referred to outside bankruptcy counsel.
Creditor committees use valuation reports in a variety of ways, and it is important for the lawyer or financial advisor to help the committee understand how to read and evaluate a valuation report. Among other things, valuation reports help assess the treatment of creditors in a proposed plan, determine the appropriate disposition of an asset or division, evaluate debt capacities and estimate potential recoveries.
An emerging strategy many hedge and private equity funds are pursuing is known as the “loan-to-own” investment. In this type of investment, a fund’s investors acquire debt and sometimes certain amounts of equity or management control, such as voting power or board seats, from a lender of a distressed company.
May a creditor’s claim be disallowed simply because he or she failed to provide supporting documentation in violation of Rule 3001 of the Federal Rules of Bankruptcy Procedure? The answer depends on which jurisdiction the creditor is pursuing its claim in, and courts are currently sharply divided on the issue. If the creditor is fortunate enough to be in a jurisdiction that follows the “exclusive” view, which is the majority rule, the answer to this problem will be yes.
Unsecured trade creditors in mid- to large-sized chapter 11 cases are frequently targets of distressed-debt traders looking to buy unsecured claims. These traders make their money in a variety of ways, principally on the assumption that the claims they buy today will be worth more later either in the distressed-trade market or upon plan distribution. For creditors who are unfamiliar with the jargon and practices of the distressed-debt market, this can sometimes lead to lawsuits. In one such case, the seller of a claim sold the claim on terms agreed to on a phone call.