Department Contacts
212.715.9505
212.715.9314
212.715.7772
212.715.9229
212.715.9186
212.715.9313
212.715.9169
212.715.7583
212.715.9413
212.715.9285
212.715.9527
212.715.9492
212.715.9248
212.715.9495
212.715.9402


May 16, 2018 | Posted by Wasson, Megan | Permalink

The Bottom Line:

The Eighth Circuit affirmed the District Court of Minnesota and the Bankruptcy Court in holding that section 303(a) of the Bankruptcy Code prohibits the substantive consolidation of non-debtor non-profit schools, churches and charitable organizations with debtors.  The Court looked to the plain language and legislative history of section 303, and determined that Congress intended to protect non-debtor non-profit and not-for-profit entities from being subject to involuntary bankruptcy petitions, which would be the effect of allowing the Committee’s motion for substantive consolidation.  The Court declined to consider whether non-debtor non-profits that act as ‘alter egos’ of a debtor under state law would be subject to the same protections.

Why the Case is Interesting:

The Eighth Circuit is only the second circuit to consider whether the estates of non-debtors and debtors can be substantively consolidated.  While the Court did not allow substantive consolidation in this instance, the Court implied that substantive consolidation between debtors and non-debtors is not beyond the Court’s powers over for-profit entities where the same restrictions on commencing an involuntarily bankruptcy against the non-debtor are inapplicable.  In addition, the Court alluded to the potential for substantive consolidation of non-profits if the alter ego test were satisfied since, in such a context, the debtor and non-debtor would effectively be treated as the same entity.  In the end, the decision underscores that affiliated non-profit entities are protected from the risk of substantive consolidation when creditors of the debtor try to reach beyond the assets of the debtor itself to satisfy their claims (e.g., substantial tort claims).  Although the case was in the context of a religious institution, it applies equally to schools or hospitals and other medical providers, especially in states (like New York) where hospital systems are non-profit entities.

read more
May 4, 2018 | Posted by Stephen Zide | Permalink
Introduction

Nonconsensual third-party releases in the Chapter 15 context may be gaining traction following a recent decision by Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York. In Avanti Communications,1 Judge Glenn found that enforcement of the nonconsensual third-party releases contained in a restructuring plan formulated under the laws of the United Kingdom was appropriate. The ruling signals that comity and cooperation with foreign courts of law will be given due, but not necessarily dispositive, consideration by U.S. Bankruptcy Courts considering the recognition and enforcement of restructuring schemes under Chapter 15 of the Bankruptcy Code. read more
April 30, 2018 | Posted by Kelly Porcelli | Permalink

The Bottom Line

The Fifth Circuit in Houston Sportsnet Finance, L.L.C. v. Houston Astros, L.L.C. (In re Houston Regional Sports Network, L.P.), 886 F.3d 523 (5th Cir. 2018), recently held that a bankruptcy court is not required to use either the petition date or the effective date for purposes of conducting a valuation in a cram-down Chapter 11 plan.  Rather, a bankruptcy court has the flexibility to select the valuation date so long as it takes into account the purpose of the valuation and the proposed use or disposition of the collateral at issue.

Why This Case Is Interesting

The Fifth Circuit declined to adopt a bright-line rule for the appropriate valuation date for purposes of Chapter 11 cram-downs, instead following a flexible approach to the timing of valuation, allowing a court to consider the development of the proceedings since the value of the collateral may vary based on its proposed use under any given plan.  While this decision is in the context of a Chapter 11 cram-down, it may provide support for courts to apply a flexible approach to Section 506(a) valuations in other contexts as well.  Creditors considering whether to make a Section 1111(b) election should be aware that courts may apply a flexible approach to determine collateral value as opposed to a rigid application of one particular date.

read more
March 7, 2018 | Posted by Philip Guffy | Permalink

The Bottom Line

The Delaware Bankruptcy Court recently held, in Stanley Jacobs Prod., Ltd. v. 9472541 Can. Inc. (In re Thane Int'l, Inc.), No. 17-50476 (KG), 2018 Bankr. LEXIS 464 (Bankr. D. Del. Feb. 21, 2018), that a debtor must file a formal motion to assume and assign an executory contract and, in so holding, rejected the doctrine of “implied assumption” based on the conduct of the debtor.  The decision declined to follow cases allowing assumption by conduct and underscores the need for affirmative motion practice to assume an agreement as part of a sale transaction.

Why This Case Is Interesting

The court adopted a strict, formulaic approach to determining whether a debtor has assumed an executory contract.  Unless the debtor has filed a formal motion that has been granted by the court, the decision supports an argument that the contract has not been assumed even if the debtor or an alleged third-party assignee makes use of the contract and derives a benefit therefrom.  (The decision does not address whether there is another basis to seek damages from the use of the services covered by the unassumed contract.)  In the instant case, the contract could have been included in an underlying sale of assets and the case underscores the need to make sure that, as part of any sale of assets including executory contracts or unexpired leases, the purchaser or the non-debtor contract party will want to verify whether the contract or lease is expressly included as an assumed contract as part of the sale motion.  Conduct or accepting the benefits of a contract or lease alone does not constitute assumption under this decision.

read more
March 6, 2018 | Posted by Adam Rogoff, Megan Wasson | Permalink
In another decision affecting Chapter 11 cases, U.S. Bank National Association v. Village at Lakeridge, --- S. Ct. ---, 2018 WL 1143822 (2018), on March 5, 2018, the United States Supreme Court issued a unanimous decision, authored by Justice Kagan, affirming the Ninth Circuit’s decision to review the Bankruptcy Court’s determination of a mixed question of fact and law for clear error, rather than de novo. The decision concerned whether a particular creditor was a non-statutory “insider” of the Chapter 11 debtor following a transfer of a claim by an insider to a third party that  (favorably) impacted the ability of the debtor to confirm a cram-down plan. read more