Haste Makes Waste? Preferences and Claims Avoidance in the Murky World of §502(d)
Written By Stephen C. Hunt

The allowance of claims and recovery of avoidable transfers are important, complementary principles in the adjustment of the debtor-creditor relationship. Like Themis personified, claims are modified or expunged to ensure that distributive justice is accomplished through the bankruptcy claim allowance and distribution process, while preferential transfers are disgorged from creditors who, by accident or design, lingered too long at the well before the commencement of a bankruptcy case. Historically, the claims adjustment and preference recovery processes have enjoyed separate lives in the ebb and flow of bankruptcy cases.
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Rejected Leases: When The Obligations End Depends
On What Circuit You’re In
Written By: Patricia B. Fugée

Section 365(d)(3) requires chapter 11 debtors to timely perform all obligations “arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected.” Section 365(d)(3) specifically provides that such sums are due “notwithstanding §503(b)(1).” Thus, obligations can be due under §365(d)(3) even when there is no demonstrable benefit to the estate. The question arises as follows: suppose the debtor is a party to a nonresidential lease which provides that rent is due, in advance, on the first day of each month. After filing for chapter 11 relief earlier in the year, the debtor obtains an order rejecting the lease as of November 2. Common sense (and many earlier decisions) suggest that the debtor is obligated to pay two days’ rent for November.
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Breakup Fees Revisited: Burlington Industries Inc. and SHC Inc.

Two recent Delaware cases illustrate how courts continue to scrutinize so-called “breakup fees” payable to “stalking horse” bidders in bankruptcy sales. In both the Burlington Industries, Inc. and SHC, Inc. (“Top-Flite”) cases, the debtors’ proposals to pay multimillion-dollar breakup fees to reputable bidders faced intense scrutiny. Although breakup fees often pass muster under prevailing criteria and thus continue to feature prominently in bankruptcy sale negotiations, debtors and potential bidders should not assume that a perfunctory showing of “added value” will carry the day. Indeed, the court denied breakup fees altogether in Top-Flite, and the court in Burlington slashed the proposed fee by more than fifty percent.
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La Quinta Committee Meeting a "Must See"

For committee members attending the Winter Leadership Conference, the Business Reorganization Committee educational program will be a “must see.” As previously reported in the newsletter, the committee will be co-sponsoring a three-part program on airline reorganizations, with panelists consisting of leading players in the UAL, US Air and Air Canada cases. Two of the segments—on first-day orders and on labor issues—will be plenary sessions, but the third segment, on aircraft leasing and finance, will be held during the committee’s meeting/educational program slot on Saturday, Dec. 6, 2003 at 9:30 a.m. We look forward to seeing members at both the plenary sessions and the committee panel.