Legal Updates
Here, you will find updates on recent case law and other educational materials prepared by our attorneys. Please be advised, however, that the information and materials are made available for general information purposes only and are not intended to constitute specific legal advice or to be a substitute for advice from qualified counsel. Please review our Notices and Terms of Use below.
June 27, 2011
Attached is a compilation of reported bankruptcy court decisions on cramdown interest rates through the first quarter of 2011. This table will be updated on a quarterly basis.
| summary_of_cramdown_interest_rate_cases.pdf |
June 12, 2011
Seventh Circuit Spoke on Director Fiduciary Obligations
In CDX Liquidating Trust v. Venrock Associates, 2011 U.S. App. LEXIS 6390 (7th Cir. March 29, 2011), the directors of an financially distressed company were held not to have the protection of the business judgment rule when they approved a short-term bridge loan to the company from an insider, with a 2X liquidation preference. Later, the company had to be sold in distress and the proceeds were just enough to pay off the liquidation preference, at the detriment of the common equity holders. Even though the connection to the insider was disclosed when the loan was approved, the 7th Circuit held that disclosure alone was not enough and that the directors had the burden to prove the transaction's "entire fairness" to the shareholders. The lender in the transaction was accused of aiding and abetting the fiduciary breach.
In CDX Liquidating Trust v. Venrock Associates, 2011 U.S. App. LEXIS 6390 (7th Cir. March 29, 2011), the directors of an financially distressed company were held not to have the protection of the business judgment rule when they approved a short-term bridge loan to the company from an insider, with a 2X liquidation preference. Later, the company had to be sold in distress and the proceeds were just enough to pay off the liquidation preference, at the detriment of the common equity holders. Even though the connection to the insider was disclosed when the loan was approved, the 7th Circuit held that disclosure alone was not enough and that the directors had the burden to prove the transaction's "entire fairness" to the shareholders. The lender in the transaction was accused of aiding and abetting the fiduciary breach.
| venrock_associates.pdf |
May 29, 2011
Retroactive Adequate Protection Debate Revived in Ninth Circuit
In In re Big3D Inc., 438 B.R. 214 (9th Cir. B.A.P. 2010), a six-judge en banc panel upheld a bankruptcy court order denying a secured creditor’s request for “retroactive” adequate protection payments. While the decision to affirm was unanimous, the panel could not agree on whether the rule on retroactive adequate protection articulated by the Ninth Circuit BAP in In re Deico Elects. Inc., 139 B.R. 945 (9th Cir. B.A.P. 1992), should be abandoned.
In In re Big3D Inc., 438 B.R. 214 (9th Cir. B.A.P. 2010), a six-judge en banc panel upheld a bankruptcy court order denying a secured creditor’s request for “retroactive” adequate protection payments. While the decision to affirm was unanimous, the panel could not agree on whether the rule on retroactive adequate protection articulated by the Ninth Circuit BAP in In re Deico Elects. Inc., 139 B.R. 945 (9th Cir. B.A.P. 1992), should be abandoned.
| 438_br_214.pdf |
Gift Plan in Doubt in Second Circuit After DBSD North America
In In re DBSD North America, Inc., 634 F.3d 94 (2nd Cir. 2011), the Second Circuit rejected the cramdown of a class-skipping gift plan, holding that the plan violated the absolute priority rule. The Second Circuit distinguished the main circuit authority in favor of gift plans, In re SPM Manufacturing Corp., 984 F.2d 1305 (1st Cir. 1993), by noting that SPM was a chapter 7 case and thus was not bound by the absolute priority rule in section 1129(b)(2)(B)(ii).
In In re DBSD North America, Inc., 634 F.3d 94 (2nd Cir. 2011), the Second Circuit rejected the cramdown of a class-skipping gift plan, holding that the plan violated the absolute priority rule. The Second Circuit distinguished the main circuit authority in favor of gift plans, In re SPM Manufacturing Corp., 984 F.2d 1305 (1st Cir. 1993), by noting that SPM was a chapter 7 case and thus was not bound by the absolute priority rule in section 1129(b)(2)(B)(ii).
| in_re_dbsd_north_america__in.pdf |
Recent Case Re Stay Relief in SARE Cases
In considering whether a reorganization is “in prospect,” the bankruptcy court may consider a variety of factors. If the debtor lacks equity in the property, property values are declining, and the debtor’s plan indicates only an ability to pay interest and not principal, a court may find a reorganization plan is not in prospect and that cause exists to left the stay. In re Cameron-811 Rusk, L.P., 2010 Bankr. LEXIS 2228 (Bankr. S.D. Tex. July 12, 2010).
In considering whether a reorganization is “in prospect,” the bankruptcy court may consider a variety of factors. If the debtor lacks equity in the property, property values are declining, and the debtor’s plan indicates only an ability to pay interest and not principal, a court may find a reorganization plan is not in prospect and that cause exists to left the stay. In re Cameron-811 Rusk, L.P., 2010 Bankr. LEXIS 2228 (Bankr. S.D. Tex. July 12, 2010).
| cameron_811_rusk_.pdf |
May 3, 2011
“中國製造商在面對財務有問題的美國買方時的救濟及策略概述” (“Chinese Manufacturers’ Remedies and Strategies When Dealing with Financially Distressed Buyers in the United States”)
| manufacturer_remedies.pdf |
April 27, 2011
Presentation material for "Proper Burial: How to Advise Corporate Clients When the End is Near"
| proper_burial.pdf |
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