Can the Marshalling Doctrine Rescue Reclaiming Creditors?
Some courts deny relief under Section 546(c) of the Bankruptcy Code to a vendor holding a valid reclamation claim where a secured lender holds a floating lien on after-acquired inventory. In such cases, no administrative expense claim or replacement lien is granted to the vendor. This occurs even when the secured lender is oversecured. This article poses the question as to whether pursuant to Sections 544(a) and 546(c) of the Bankruptcy Code the equitable doctrine of marshalling should apply to provide relief to a reclamation creditor where a secured lender holding a lien on substantially all of the debtor's assets, including floating lien and after-acquired inventory, is oversecured. A plain reading of Sections 544(a) and 546(c) of the Bankruptcy Code suggests that a reclaiming creditor may be able to invoke the marshalling doctrine under these circumstances.
The Wrong Box: <i>U.S. v. Martignon</i> Not a Copyright Case
A prominent court, the U.S. District Court for the Southern District of New York, has rendered what may become a prominent opinion in the copyright arena, <i>U.S. v. Martignon</i>, No. 03 Cr. 1287 (S.D.N.Y. Sept. 27, 2004). Unfortunately, the analysis in the decision misses the essential point that the issue was not really one of copyright.
The Devil in the Details
Last month, we discussed the fact that in theory, a borrower's issuance of junior secured debt is a boon for its senior secured lender. In practice, however, we pointed out that a senior secured lender should view proposed junior secured financing skeptically because the existence of such debt can become highly problematic for the senior lender. In Part Two, we continue our discussion, which focuses on additional elements and negotiating points that an inter-creditor agreement should contain.
Deepening Insolvency Lender's Victory over Trustee May Have Far-Reaching Implications
The decision by Chief Judge Stuart M. Bernstein of the United States Bankruptcy Court for the Southern District of New York in <i>In re Global Service Group LLC</i>, 316 B.R. 451 (Bankr. S.D.N.Y. 2004), provides a sense of relief not only for lenders, but also for various other participants in the bankruptcy arena who may face claims based on "deepening insolvency." This case is especially significant because it helps define the conduct that may subject a party to liability under an amorphous concept that is still evolving.
Restructuring AMERCO
When AMERCO, the parent company of U-Haul International, emerged from bankruptcy protection in March 2004, it secured an unusual place in history -- exiting Chapter 11 with a global capital restructuring that resulted in zero dilution in shareholder value. Alvarez & Marsal, which was retained as the company's financial advisors, executed one of the most successful restructurings on record by developing and implementing a complex and consensual plan that required significant negotiations with a diverse group of debt and equity holders. By the end of the swift process, AMERCO's common equity value had increased by over 350% and nearly $300 million in value was restored to the investments of preferred stock and unsecured debt holders.
In Search of the Holy Grail
<b>Part Two of a Two-Part Article.</b> In our article that appeared in last month's issue, we discussed the special rule contained in Section 382(l)(5) with respect to the use of net operating losses by a company that has restructured under the protection of the bankruptcy court. Where the stock, debt and claims against a bankrupt company are traded, companies execute lock up agreements with their stockholders or request orders from the bankruptcy court to restrict trading in the stock, debt or claims so as to protect its net operating loss carry forwards. Often, out of an excess of caution, the orders requested have been overly broad and have disrupted trading in such debt and claims. On Nov. 22, 2004, The Bond Market Association and The Loan Syndications and Trading Association announced that in a joint effort they had developed a model NOL order to address these disruptions. Part Two discusses the results.
Section 547(C)
In recent years, one of the hottest topics in bankruptcy law has been the use and appropriateness of critical vendor orders (hereinafter, CVOs). Critics argue that CVOs directly contradict the mandate of the Bankruptcy Code requiring equal treatment of similarly situated creditors. Even worse, critics point out, is that requests for CVOs are often presented, and the CVO entered, in the first days of a Chapter 11 bankruptcy case on shortened and limited notice to a minimal amount of creditors, days or weeks prior to the appointment of any statutory committees under Section 1102. Thus, it is often the case that the very creditors that are being discriminated against by court sanctioned preferential behavior are not given the notice and/or do not have the knowledge to allow them to appear and object to the entry of the CVO.
