Pepper Hamilton LLP; Philadelphia
Pepper Hamilton LLP; Philadelphia
The epic §363 sales that were consummated in the Chrysler and General Motors bankruptcies this past summer raised objections from parties in interest[1] and concerns from the broader legal community[2] that the sale transactions were, in effect, sub rosa plans that effectively bypassed the Bankruptcy Code’s important disclosure and voting requirements. Issues related to sub rosa plans most often arise in the context of a §363 bankruptcy sale of all, or substantially all, of the assets of a financially-distressed business. However, a recent opinion from the U.S. Bankruptcy Court for the Northern District of Mississippi found that, among other problems, the chapter 11 debtor’s proposed postpetition debtor-in-possession (DIP) financing constituted an impermissible sub rosa plan. The decision highlights the need for debtors and potential DIP lenders to carefully evaluate whether financing terms may conceivably give rise to a colorable argument that a lending facility seeks to impermissibly bypass the statutory requirements pertaining to the plan confirmation process.
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Dykema Gossett PLLC; Dallas
Young Conaway Stargatt and Taylor LLP; Wilmington, Del.
A series of recent court opinions have precipitated ominous warnings that we may be witnessing the erosion of secured creditors’ rights, an erosion that some have argued may herald substantially increased borrowing costs and a further dissipation of the credit markets as a whole.
In TOUSA,[2] the bankruptcy court, finding fraudulent conveyance, not only avoided the liens that arose from the fraudulent transfer, but also ordered the disgorgement of all funds received by the senior lenders plus nine percent in prejudgment interest, a result aggregating more than $480 million. In General Growth,[3] a case involving the debtor and 337 of its 750 subsidiaries, affiliates and joint ventures, the bankruptcy court, in denying several motions to dismiss for bad faith, and notwithstanding the special-purpose entity (SPE) structure of the group as a whole, concluded that the interests of the entire group must be taken into account in determining whether an individual SPE should be dismissed.
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ABI's 28th Annual Spring Meeting will be held April 29-May 2 at the expansive Gaylord National Resort and Convention Center, just moments from Washington, D.C. Nestled in a harbor on the banks of the Potomac with views of our Nation's Capitol, this hotel offers the best in the meetings industry with high-end guest rooms, fine and casual dining and a spa.
The Secured Credit Committee will partner with the Young and New Members Committee to present a session on Saturday, May 1 at 4:15 p.m. entitled "Practice Tips, Pitfalls and Recent Trends When Bankruptcy and the Uniform Commercial Code Collide." Stephen v. Falanga of Connell Foley LLP in Roseland, N.J. will moderate. Speakers will include Hon. Mary Grace Diehl of the U.S. Bankruptcy Court in Atlanta, Prof. Ingrid Michelsen Hillinger of the Boston College Law School in Newton, Mass. and Carl Norman Kunz of Morris James LLP in Wilmington, Del. Register today!
