Bankruptcy Claims Traders Alert

Over the past five years, courts have issued rulings of potential concern to buyers of distressed debt. Courts have addressed, among other things, “loan to own” acquisition strategies resulting in vote designation; equitable subordination, disallowance and other lender liability exposure based upon the claim seller's misconduct; disclosure requirements for ad hoc committees of debtholders; the adequacy of standardized claims trading agreements; and claim filing requirements in the era of computerized records. One of the latest developments in the growing body of bankruptcy jurisprudence affecting this area was contributed recently by the Seventh Circuit Court of Appeals. In Regan Capital I, Inc. v. UAL Corp. (In re UAL Corp.), 635 F.3d 312 (7th Cir. 2011), the court affirmed a ruling below that the purchaser of a claim based upon an executory contract that was ultimately rejected by a Chapter 11 debtor-in-possession (“DIP”) is not entitled to cure amounts as part of its allowed claim.