Law.com Subscribers SAVE 30%
Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.
Draw on Letter of Credit Has Same Effect As Cash Forfeiture
It is well-settled that “property of the estate” is broadly defined under section 541 of the Bankruptcy Code as including all legal and equitable interests of a debtor. Therefore, the breadth of property of the estate includes a debtor's indirect, residual or reversionary interest in the return of funds. It is also equally acknowledged that, in general, a letter of credit (LC) is an independent obligation of the issuing bank and, under the “independence principle,” is not necessarily property of the estate. From time to time, these two concepts — broad estate interest in property versus the treatment of a LC — clash in bankruptcy. In these instances, some courts will look at “substance” and not “form” to determine whether the debtor's residual interest in an LC is property of its estate.
LCs are routinely posted by debtors as a form of collateral. Rarely — if ever — is an LC posted unrelated to the debtor's obligation to the “beneficiary” (it's not a “gift”). As with any form of collateral, a creditor does not have an absolute right to keep the collateral apart from the underlying debt. As such, the debtor continues to have a residual interest in any such collateral in excess of the allowed secured claim, which residual interest should be made available to satisfy claims of other creditors
The “independence principle” for LCs should not necessarily affect this end result. Therefore, whether or not collateral is in the form of an LC, courts should look to the parties' underlying rights to determine the ultimate ownership interest in the LC's proceeds. Where a creditor is holding LC proceeds that clearly exceed its allowed secured claim, it should not be permitted to retain those funds simply because the funds constitute the “proceeds” of an LC. In performing this analysis, a court may also examine the impact the draw on an LC would have on a debtor's estate.
This premium content is locked for Entertainment Law & Finance subscribers only
ENJOY UNLIMITED ACCESS TO THE SINGLE SOURCE OF OBJECTIVE LEGAL ANALYSIS, PRACTICAL INSIGHTS, AND NEWS IN ENTERTAINMENT LAW.
- Stay current on the latest information, rulings, regulations, and trends
- Includes practical, must-have information on copyrights, royalties, AI, and more
- Tap into expert guidance from top entertainment lawyers and experts
Already a have an account? Sign In Now Log In Now
For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Strategy vs. Tactics: Two Sides of a Difficult Coin
With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.
The Anti-Assignment Override Provisions
UCC Sections 9406(d) and 9408(a) are one of the most powerful, yet least understood, sections of the Uniform Commercial Code. On their face, they appear to override anti-assignment provisions in agreements that would limit the grant of a security interest. But do these sections really work?