Read More from: Bankruptcy and Restructuring Law Monitor
Read More from: Bankruptcy and Restructuring Law Monitor
The extent of the automatic stay’s extraterritorial reach under chapter 15 of the Bankruptcy Code has been more clearly defined by a memorandum decision entered on August 23, 2010 by the United States Bankruptcy Court for the Southern District of New York in In re JSC BTA Bank, Case No. 10-10638, 2010 WL 3306885 (Bankr. S.D.N.Y. Aug. 23, 2010) (Peck, B.J.).
In JSC BTA Bank, the debtor, JSC BTA Bank (“BTA Bank”), one of the largest banks in the Republic of Kazakhstan, commenced reorganization proceedings in Kazakhstan on October 16, 2009, and subsequently sought recognition of the Kazakh proceeding under chapter 15. The bankruptcy court granted recognition of the Kazakh proceeding as a main proceeding in March of 2010, along with the relief set forth in section 1520 of the Bankruptcy Code “including, without limitation, the application of the protection afforded by the automatic stay under section 362(a) of the Bankruptcy Code to the Bank worldwide and to the Bank’s property that is within the territorial jurisdiction of the United States.” Id. at 8 – 9.
Contributed by Sara Coelho
When a debtor files for bankruptcy protection, one of most important and least appreciated tasks is keeping the lights on. Like many creditors, once the debtor files its petition for bankruptcy protection, utilities can be stuck with a prepetition claim, and like all creditors they are not happy about it. Utilities provide an essential service however, and so they have unusual power to wreak havoc on a debtor’s operations if their claim is not paid. To protect debtors from disruptions in service following a bankruptcy filing, section 366 the Bankruptcy Code requires utilities to continue service without disruption, so long as the debtor provides “adequate” assurance (typically in the form of a deposit) that it will pay its bills postpetition. This system has protected debtors entering bankruptcy while also providing utilities with protection from further payment failures.
Contributed by Elisa Lemmer
The recent decision in In re Renegade Holdings confirming a plan of reorganization premised, pursuant to section 1123(a)(5) of the Bankruptcy Code, on preemption of state law has continued to fuel the unresolved circuit split ignited by the Ninth Circuit nearly a decade ago in Pacific Gas & Electric. Renegade Holdings, like other recent cases outside of the Ninth Circuit, declined to adopt the very narrow view of 1123(a) – a section of the Bankruptcy Code that provides for preemption of applicable nonbankruptcy law in certain circumstances – held by the Ninth Circuit. Renegade Holdings, however, failed to shed any additional light on the scope of preemption provided by section 1123(a). The result is that, outside of the Ninth Circuit, where the limits of section 1123(a), are broader but less defined, debtors whose plans are premised on preemption of nonbankruptcy law must continue to tread those proverbial waters carefully.
In In re Endeavour Highrise L.P., 2010 WL 935359 (Bankr. S.D. Tex. Mar. 12, 2010), the bankruptcy court for the Southern District of Texas held that a party waived his Seventh Amendment right to a jury trial by filing a counterclaim in an interpleader action filed in the bankruptcy case.
Prior to the bankruptcy filing, the debtor, a developer of a high-rise condominium, and a prospective purchaser entered into an earnest money contract relating to the sale of a condominium unit. The contract provided a right to claim the earnest money if the sale failed to close due to a default by the other party. After the debtor’s bankruptcy filing, the title company holding the earnest money brought an interpleader action in the bankruptcy court seeking to deposit the earnest money into the court’s registry and have the bankruptcy court determine whether to pay the earnest money to the debtor’s estate or to the prospective purchaser. A chapter 11 trustee appointed in the case filed an answer to the complaint and a cross-claim against the purchaser. In response, the purchaser filed an answer and cross-claim asserting a right to the earnest money and demanding a jury trial. The chapter 11 trustee subsequently moved to strike the demand for a jury trial.
Contributed by Victoria Vron
This was the question before the Court in Compania Mexicana de Aviacion, S.A. de C.V., Case No. 10-14182 (MG) (Aug. 16, 2010). In the Mexicana case, the United States Bankruptcy Court for the Southern District of New York was asked by a chapter 15 debtor, Compania Mexicana de Aviacion, S.A. de C.V. (“Mexicana”), to issue a preliminary injunction affording section 362 type relief to Mexicana prior to recognition of Mexicana’s foreign main proceeding (the “Concurso Proceeding”). The purported foreign representative of Mexicana, who was appointed as such by Mexicana’s board of directors made the request for the preliminary injunction. At the time of the injunction request, the foreign representative had not yet been approved by the Mexican bankruptcy court in the Concurso Proceeding to act as the foreign representative. Under Mexican bankruptcy law, there is generally a gap of at least several weeks between the commencement of the Concurso Proceeding and the time that the Mexican bankruptcy court approves a foreign representative.
Contributed by Sunny Singh
On July 13, 2010, in one of the most significant and controversial decisions regarding retiree medical benefits in chapter 11, the Third Circuit held – contrary to the majority of lower courts that have considered the issue – that Visteon Corporation, a chapter 11 debtor, could not terminate its retiree health benefits without compliance with section 1114 and notwithstanding that Visteon had retained, as most large companies do, the unilateral right to terminate or modify retiree benefits at any time and without cause. See In re Visteon Corp., 188 L.R.R.M. 3240 (3d Cir. 2010).
Section 1114 requires a chapter 11 debtor to continue to provide retiree health benefits unless it agrees to a consensual modification of such benefits with the retirees or if the bankruptcy court finds that, after good faith negotiations, the retirees have refused to accept the debtor’s proposal without cause and “such modification is necessary to permit the reorganization of the debtor.” Section 1114 can be an expensive and time consuming process for debtors and, if applicable, shifts enormous leverage to retirees in a chapter 11 proceeding.
Contributed by Michael F. Walsh
The chapter 11 case of Thornburg Mortgage, Inc. has generated substantial litigation against former officers and directors of the debtors, as well as the debtors’ corporate counsel. The case is a useful reminder of some of the issues that may arise when representing a company whose officers, directors, or affiliates may have interests that are not completely aligned with those of the company. In re TMST, Inc., Bankr. D. Md. 2009, Case No. 09-17787 (DWK).
Prior to its chapter 11 filing in May of 2009, TMST, Inc. (f/k/a Thornburg Mortgage, Inc.) (“TMST”) was a real estate investment trust which, through its subsidiaries, originated, acquired, securitized, and serviced residential mortgage loans. TMST had none of its own employees, offices, or computer equipment. Instead, TMST’s businesses were managed on a day to day basis by Thornburg Mortgage Advisory Corporation (“TMAC”) pursuant to the terms of a management agreement between TMST and TMAC. TMAC’s majority shareholder was Garrett Thornburg, who was also chairman of TMST’s board of directors. TMST’s CEO and CFO, Larry Goldstone and Clarence Simmons, were also equity holders in TMAC.