Subrogation Claims in Bankruptcy
In many cases, a creditor in a bankruptcy case (the 'Primary Creditor') has the benefit of a guaranty, an escrow, or a letter of credit provided by a third party (the 'Subrogee') to which it can turn in order to satisfy its claim against the debtor. When the Subrogee pays the debtor's obligation to the Primary Creditor after the debtor has filed a petition in bankruptcy, the Subrogee will in most cases be entitled to assert a subrogation claim against the debtor in the bankruptcy case. Below, we discuss the relevant considerations in determining whether a subrogation claim is valid.
Disallowance and Subordination of Transferred Claims
Bankruptcy claims traders are currently on the lookout for a decision from the Enron bankruptcy court that could add significant uncertainty to distressed debt markets. The court has under advisement the issue of whether claims sold post-petition are subject to disallowance under ' 502(d) or equitable subordination as a result of pre-petition conduct or receipt of avoidable transfers by the transferor.
A New Model for Auto Supplier DIP Financing?
Without any reservation, it is safe to say that insolvency crisis facing the U.S. auto industry ' from myriad Tier 2 suppliers right up to the legacy-burdened OEMs ' has become the cause c'l'bre of the professional restructuring community, and for objectively good reason. In this year alone, at least eight parts makers (among them, Collins & Aikman Corp., Meridian Automotive Systems, Inc., Tower Automotive, Inc., Jernberg Industries, Inc., Harvard Industries, Inc., Jacobs Industries, Inc., and Delphi Corp.) filed for Chapter 11 relief. And many industry experts believe that these cases represent merely a harbinger of even bigger things to come.
Katrina and the New Insolvency Law
Though Hurricane Katrina may flood bankruptcy courts with new filings from its victims, experts differ over whether the new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which took effect in October, will blow away small businesses in the Gulf Coast region.
Distress Terminations of Underfunded Pension Plans
Recent bankruptcies in the airline industry have highlighted the liabilities associated with underfunded defined benefit pension plans. Debtors seeking to restructure and reorganize into viable entities have to make difficult business decisions related to their sponsorship of defined benefit pension plans. The future funding costs and investment risks associated with continued sponsorship of underfunded defined
Using Chapter 11 to Shed Extravagant Benefit Packages
In May of this year, a bankruptcy court allowed United Airlines to terminate certain of its defined benefit pension plans, clearing the way for the largest pension default in U.S. history. The default will save United an estimated $645 million a year in pension contributions, part of the $2 billion in annual savings it says it needs to emerge from Chapter 11. United's success has led to speculation that other corporations with generous and/or underfunded pension and other retiree benefit plans will also use bankruptcy to clean 'legacy costs' off their balance sheets. Modification or termination of such liabilities in Chapter 11, however, is not without difficulty.
'Deal Doing' for Restructuring Professionals
Your Scout manual was right ' you should always be prepared. And for lawyers, clients and other advisers alike, there is no substitute for doing homework. You can't control whether you're the smartest person in the room, or whether your client has the most leverage, but you are completely in control of who will be the most prepared person in the room. An important part of preparation is knowing all of the strengths and weaknesses of your position, as well as the positions of the other stakeholders. Pre-negotiation pre-paration gives everyone a sense of their goals for the negotiation, and the point beyond which it no longer makes sense to continue negotiating.
