Chapter 11 Transfer Tax Exemption Expanded by the Eleventh Circuit
February 24, 2005
The ability to sell assets during the course of a Chapter 11 case without incurring transfer taxes customarily levied on such transactions outside of bankruptcy often figures prominently in a potential debtor's strategic bankruptcy planning. However, the circumstances under which a sale or related transaction qualifies for the tax exemption has been a focal point of dispute for many courts, including no less than four circuit courts of appeal. A ruling recently handed down by the Court of Appeals for the Eleventh Circuit fuels this growing controversy in a way that may encourage Chapter 11 debtors to rethink the way that they structure plans of reorganization.
Production Resources Decision
February 24, 2005
In the current environment of increasing scrutiny of corporate behavior after corporate scandals such as Enron and WorldCom, lawsuits brought by creditors for breach of the fiduciary duties owed to them by officers and directors have increased significantly. The suits are taking center stage on the dockets of bankruptcy courts and state courts alike, and receive much public attention across the country. Against this backdrop, the Delaware Court of Chancery's November opinion in <i>Production Resources Group, L.L.C. v. NCT Group, Inc.</i>, __ A.2d __ (Del. Ch. 2004); C.A. No. 114-N, 2004 Del. Ch. LEXIS 174 (Del. Ch. Nov.) is likely the most important pronouncement on the nature of fiduciary duty claims brought by creditors since the Court of Chancery's 1991 opinion in <i>Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp.</i>, C.A. No. 12150, 1991 WL 277613 (Del. Ch. Dec. 30, 1991).
Can the Marshalling Doctrine Rescue Reclaiming Creditors?
February 24, 2005
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
January 27, 2005
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
January 25, 2005
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
January 25, 2005
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
January 25, 2005
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
December 27, 2004
<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.
