Young and New Members

Preference Exposure for Workout Payments

This article addresses potential preference exposure for workout payments made pursuant to restructuring agreements between a creditor and debtor. Specifically, this article will address whether these payments are free from avoidance under the “ordinary course of business” defense.

The Ordinary Course of Business Defense in General

The “ordinary course of business” defense set forth in §547(c)(2) of the Bankruptcy Code provides:

(c) The trustee may not avoid under this section a transfer--

Bad Boys, Bad Boys, Whatcha Gonna Do: After Credit Suisse v. Boespflug Enforces a "Bad Boy" Guaranty, It May Be What the Bank Wants You to Do

Commercial real estate projects are typically financed with non-recourse mortgage loans for tax reasons. If the borrower defaults, the lender’s sole recourse is to foreclose on the mortgaged property to recover on any balance owed under the loan; it may not recover against the other assets of the borrower or its principals. This financing arrangement may create uncertainty for lenders, who are understandably concerned that the borrower and its principals may misuse the loan proceeds, thereby jeopardizing the lender’s full recovery in a foreclosure.

Can Noteholders Credit Bid?

With the greatest financial crisis in a century roaring full steam ahead with no end in sight, bankruptcy filings are up as well as §363 sales. Sales pursuant to §363 of the Bankruptcy Code have become more common than traditional plans of reorganization in bankruptcy cases. As a consequence, senior secured lenders have enforced their right to credit bid in such §363 sales. The majority of the case law involves the rights of secured lenders and a secured lender’s ability to credit bid. However, a recent decision in the U.S.

Second Circuit Opines on Interplay Between Bankruptcy Code Sections 502(b) and 503(b)

In ASM Capital LP v. Ames Dept. Stores Inc. (In re Ames Dept. Stores Inc.), No. 07-1362, 2009 WL 2972510 (2d Cir. Sept. 18, 2009), the Second Circuit considered “whether section 502(d) of the Bankruptcy Code, which bars allowance of certain claims filed against the debtor’s estate by alleged recipients of preferential transfers, also bars allowance to such a claimant of postpetition administrative expenses pursuant to section 503(b) of the Bankruptcy Code.” Ames Dept., 2009 WL 2972510 at *1.

Book Review: A Comparison Shopping Guide for 363 Sales

“Who doesn’t love a good sale” are the introductory words used in A Comparison Shopping Guide for 363 Sales, written by Kelly K. Frazier and published this summer by ABI. But, how does a lawyer conduct a business asset sale pursuant to 11 U.S.C. §363? Or better yet, how does a lawyer advise the debtor-in-possession, potential purchaser or secured lender? These questions and more were answered in this manual.

Reaffirmation Agreements: Basic Practice Tips and Pitfalls

Reaffirmation agreements are appearing more frequently on courts' dockets because of changes implemented by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). This piece discusses the post-BAPCPA increase in the number of reaffirmation agreements being filed with the court, provides (from the perspective of chambers) basic guidance in completing these agreements and highlights some of the difficulties they can present to attorneys representing debtors.

Due Process and 363 Sales of Consignment Goods

A recent decision of the Bankruptcy Court for the District of Delaware (court) halted a proposed §363 sale, and this decision could significantly impact future bankruptcy sales of retail businesses holding inventory on consignment. In re Whitehall Jewelers Holdings Inc., 2008 WL 2951974 (Bankr. D. Del. July 28, 2008). Whitehall Jewelers is a nationwide specialty retailer of jewelry, operating 373 retail stores in 39 states as of June 23, 2008 (petition date).

The Forgotten Defenses of Setoff & Recoupment

Two commonly misunderstood remedies in the young bankruptcy practitioner's tool box are the defenses of setoff and recoupment. Section 553 of the Bankruptcy Code preserves the nonbankruptcy right of a "creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case...." 11 U.S.C. §553(a).

11 U.S.C. §503(b)(9): A Primer on the Caselaw Two Years After BAPCPA

The enactment of 11 U.S.C. §503(b)(9) as part of BAPCPA was widely lauded as providing a great benefit to trade creditors. Under §503(b)(9), a creditor shall be allowed an administrative expense for “the value of any goods received by the debtor within 20 days before the date of the commencement of a case under [Title 11 of the U.S. Code (the Bankruptcy Code)] in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.” Despite being on the books for over two years, there are few decisions of record interpreting the statute.