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By: Michael A. Battema

St. John’s University Law Student

American Bankruptcy Institute Law Review Staff

The Third Circuit, in In re Global Industrial Technologies, Inc.,[1] recently held that insurance companies had standing to challenge the terms of the debtors’ proposed plan of reorganization (the “Plan”) because they had legally protected interests therein.[2]  In 2002, Global Industrial Technologies (“GIT”) and its subsidiary company, A.P. Green Industries, Inc., (“APG” and collectively the “debtors”), filed for chapter 11 protection in response to thousands of separate asbestos and silica-related personal injury claims filed against APG.[3]  In the Plan, the debtors sought to create two separate trusts that would assess and resolve the various claims against APG.[4]  Under the Plan’s terms, the trusts were to be funded by the proceeds of certain assigned insurance policies, which the debtors believed would fully cover all liabilities.[5]  Hartford Accident and Indemnity Company, First State Insurance Company, Twin City Fire Insurance Company, Century Indemnity Company, and Westchester Fire Insurance Company (collectively the “Insurers”) were among the insurers whose polices were assigned to the debtors’ silica-related trust.[6]  On November 14, 2007, the bankruptcy court confirmed the debtors’ Plan over the Insurers’ objections because the court determined that the Insurers lacked standing to object to the Plan.[7]

By: Peter N. Chiaro

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

The United States Bankruptcy Court for the Eastern District of Pennsylvania, in In re Brewery Park Associates, L.P.,[1] recently affirmed that the “absolute priority rule” is violated when a secured creditor receives more than the value of its claim under a chapter 11 plan.  Following the expiration of the debtor’s exclusivity, the Retirement Fund (“TRF”), a secured creditor, proposed its own chapter 11 plan.[2]  After failing to gain approval from all classes of impaired creditors, it sought to cramdown its proposed chapter 11 plan under section 1129(b).[3]  TRF’s plan allowed TRF to obtain a parcel of property that was worth, by its own estimate, between $5 million and $6 million in exchange for a credit bid of $2 million.[4]  Further, because TRF’s secured claim was roughly $5.2 million, TRF’s low credit bid would also give it deficiency claims against the loan guarantors.[5]  The court determined that TRF’s plan would likely overpay TRF’s allowed claim, and therefore the plan could not be confirmed because it was not fair and equitable.[6]

By: Brian P. King

St. John’s Law Student

American Bankruptcy Institute Law Review Staff    

Broadly interpreting the forward contracts definition, the District Court for the Eastern District of Louisiana, in Lightfoot v. MXEnergy, Inc.[1] held, for the first time, that a requirements contract to provide energy to a purchaser, absent a specific quantity, was a ‘forward’ contract.[2]  As a result, payments made under that contract were not avoidable as preferences pursuant to 11 U.S.C § 547[3] because they were deemed to be settlement payments[4] related to a forward contract.  The issue arose under an agreement between MBS Management Services, Inc. (“MBS” or the “Buyer”), a real-estate management company and MXEnergy, Inc. (“MX” or the “Supplier”) who agreed to supply all of the energy requirements for apartments managed by MBS.   Following MBS’s bankruptcy filing,[5] the court appointed trustee, Lightfoot, initiated an adversary proceeding to avoid payments made by the Buyer to the Supplier on the basis that those payments were preferences under 11 U.S.C § 547.[6]  The defendants asserted that, as a forward contract merchant,[7] the payments made by MBS were settlement payments made pursuant to a forward contract and, as such, they could not be avoided under section 547 based on the limitations set forth in 11 U.S.C § 546(e).[8]  The court agreed. 

 By: Joshua L. Eisenson

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

By: Jonathan Weiss

St. John’s Law Student

American Bankruptcy Institute Law Review Staff 

In S. White Transportation, Inc.,[1]the Bankruptcy Court for the Southern District of Mississippi held that secured creditor had “participated” in the chapter 11 case and was bound by a plan voiding its lien because it received notice, even though it had not appeared or taken any action in the case.[2] The debtor, S. White Transportation, Inc. (“SWT”), had challenged the validity of a Deed of Trust with the creditor, Acceptance Loan Company, Inc. (“Acceptance”) in state court on the basis that the individuals who had signed the Deed of Trust on behalf of SWT did not have the authority to do so.[3]  Consistent with its claims in state court, SWT’s proposed chapter 11 plan classified Acceptance’s lien as a disputed claim on which no payment would be made.[4] Two weeks after SWT’s chapter 11 plan was confirmed, Acceptance objected to the plan, requesting that the court find that its lien survived the confirmation unaffected.[5] The court held that the plan voided the lien and denied motions for relief and modification of the plan, and reaffirmed the old adage that litigants must not “sleep on their rights”.[6]