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The practice of granting third party releases in bankruptcy was recently dealt another blow by the District Court for the Eastern District of Virginia. In Patterson et. al. v. Mahwah Bergen Retail Group, Inc., Civil No. 3:21cv167 (DJN), the District Court found that the lower bankruptcy court lacked the constitutional authority to both rule on certain of the claims covered by the third-party releases at issue and, it follows, to confirm the debtors’ plan of reorganization.  The District Court went so far as to sever the third-party releases from the plan, vacating the plan and remanding the matter for consideration of the plan without the releases.  But the District Court didn’t stop there. The District Court further ordered that the case be reassigned to a different bankruptcy judge in a different regional division (that is not known for consistently granting third-party releases), adding that the Chief Judge could “assign it to himself if he believes the interests of justice so warrant.”  Doc. 79 at 86.

Continue Reading Another Blow: Third Party Releases Under Attack

The Bankruptcy Court for the District of Delaware recently expressed its view regarding the reach of the “solvent debtor exception” in In re The Hertz Corp., et al.  The solvent debtor exception is an equitable doctrine which supports the proposition that creditors are entitled to the full suite of their contractual rights if the debtor in bankruptcy is solvent. Notably, the doctrine has been advanced to support the argument that solvent debtors are required to pay post-petition interest owed to unsecured creditors at the contract rate of interest, including in some instances, the default rate.

Continue Reading Hertz: The “Solvent Debtor Exception” Loses Some Traction

In its much-discussed decision, City of Chicago v. Fulton, 141 S. Ct. 585 (2020), the Supreme Court ruled that the City of Chicago (“City”) was not in violation of Section 362(a)(3) of the Bankruptcy Code for failing to release an impounded car to a debtor in bankruptcy. Section 362(a)(3) imposes an automatic stay over “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” According to the Supreme Court, a violation of this section requires some affirmative act beyond mere retention of a debtor’s property.  Secured creditors applauded the decision as it shed some light on factors to consider when deciding whether to return property of their bankrupt borrowers that may have been impounded, seized or otherwise have come into their possession prior to bankruptcy. The Supreme Court, however, limited its ruling to the particular section before it (Section 362(a)(3)), and did not address potential automatic stay violations set forth in other sections, including Sections 362(a)(4), (6) and (7), of the Bankruptcy Code.[1]  Whether the reasoning in Fulton applies to these other sections remains an open question, but one that may soon be answered.

Continue Reading Lenders Beware: The Supreme Court’s Ruling in Fulton May Not Be the Final Word on Violations of the Automatic Stay

Periodically courts remind corporate directors that their decisions to act or to refrain from acting during the course of managing the affairs of a corporation are not without limitations.  It is well established that corporate directors owe fiduciary duties, and more specifically, a duty of care and a duty of loyalty to corporate shareholders.  Those duties should always be at the front of mind of every director when any action or inaction is contemplated, but in particular, when addressing challenging issues facing the corporation.  Directors are afforded wide latitude under state corporate law, and by the courts interpreting those laws, to make decisions regarding the management of a corporation that are appropriately within the scope of the directors’ business judgement.  But courts, and in particular bankruptcy courts with an interest in protecting a number of different stakeholders, are not shy about reminding corporate directors that the scope of protection provided by the business judgment rule is not unlimited.  Such is the case with In re Sportco Holdings, Inc., et al., 2021 WL 4823513 (Bankr. D. Del.), a recent decision by the Bankruptcy Court for the District of Delaware.

Continue Reading Corporate Directors’ Exposure to Breach of Fiduciary Duty Claims

With the confirmation of Carlson Travel’s plan of reorganization within 24 hours from the company’s filing, expedited confirmations took another step toward normalization. Carlson Travel (better known as Carlson Wagonlit Travel) together with 37 affiliated entities filed bankruptcy in the Southern District of Texas (Houston Division) on the evening of Thursday, November 11, 2021. The debtors managed to schedule a joint hearing on the approval of their disclosure statement and confirmation of their prepackaged plan for Friday morning, the next day. As with all pre-packs, the debtors had solicited votes on their plan prior to filing their cases, including a pre-petition notice period for objections. The company reported that it had received acceptances from all of its bank lenders and more than 90% of its other secured debt. Earlier in 2021, Belk Inc. and affiliates accomplished a similar feat in the same Court. Others to confirm their prepackaged plans on an expedited timetable include Sunguard Availability Services Capital, Inc. and FullBeauty Brands Inc., both in 2019.

Continue Reading Further Support for Expedited Confirmations with Carlson Travel

On the heels of this month’s confirmation of Purdue Pharma’s controversial plan of reorganization which contained third-party releases in favor of the Sackler family members, a new bill has been introduced in the Senate seeking an end to what some critics refer to as “bankruptcy forum shopping.”  The bill is a companion bill to H.R.

The District Court for the Southern District of New York recently issued an important decision that provides further support for a holistic analysis when applying the Bankruptcy Code’s “safe harbors.”  In Mark Holliday, the Liquidating Trustee of the BosGen Liquidating Trust v. Credit Suisse Securities (USA) LLC, et al., 20 Civ. 5404 (Sept. 13, 2021),

Does a lender’s demand for the appointment of a Chief Restructuring Officer (or CRO) by its borrower constitute “undue duress” for purposes of invalidating a personal guarantee? That question was before the Fifth Circuit in Lockwood International, Inc. v. Wells Fargo, National Association et al. v. Michael F. Lockwood, Case 20-40324 (5th Cir. 2021).

The Delaware Bankruptcy Court (“Bankruptcy Court”) recently issued a ruling that provides additional clarity regarding the treatment of “appraisal rights” in bankruptcy proceedings and the scope of section 510(b) of the Bankruptcy Code.  In In re RTI Holding Company, LLC, et al., (decided August 4, 2021) the Bankruptcy Court subordinated the general unsecured claims