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Business Reorganization

Plan Including Marijuana Tenant not “Up In Smoke.”

By: Cameron Purcell

St. John’s University School of Law

American Bankruptcy Institute Law Review, Staff Member

Bankruptcy Court Protects Rights of Customers Not Parties to Settlement Negotiation

By: Zach T. Benaharon

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff Member

Non-consenting Creditors not Enjoined from Future Suit Against Non-Debtor Parties

By: Brandon Auerbach

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff Member

A Creditor May Exercise Its Rights As A Shareholder To Vote Against A Bankruptcy Filing

By: Frank Pecorelli

St. John’s University School of Law Student

American Bankruptcy Institute Law Review Staff

Gap Period Claim Not Allowed Because of Force Majeure Clause

By: Daniel Ishoo

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Delaware Bankruptcy Court Creates Vendor-Friendly Forum by Preserving Reclamation Rights in the Face of DIP Lenders’ Liens

By: Dean Katsionis

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Section 546(c) of the Bankruptcy Code preserves a vendor’s right to reclaim goods sold to an insolvent debtor within forty-five days of the debtor’s bankruptcy filing.[1] Courts have had to address whether a post-petition lender’s subsequently perfected security interest defeats the vendor’s reclamation rights when a post-petition loan is used to repay the debtor’s prepetition secured loan, which are generally subject to reclamation rights.[2] In In re Reichold Holdings US, Inc., the United States Bankruptcy Court for the District of Delaware overruled a liquidating trustee’s objection to a vendor’s reclamation claim, holding that the vendor’s reclamation rights arose before a post-petition DIP lender’s liens attached, and as such, those liens were subject to the prior reclamation rights of the vendor.[3]

Court Invalidates the Use of Blocking Directors as Against Public Policy

By: Samantha Guido

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

The use of a blocking director is a common practice by creditors looking to mitigate the risk of a debtor’s bankruptcy filing.[1] In In re Lake Michigan Beach Pottawattamie Resort LLC,[2] the United States Bankruptcy Court for the Northern District of Illinois held that a blocking director provision was invalid because it impermissibly eliminated the fiduciary duty owed by the creditor to the debtor.[3] In interpreting Michigan corporate governance law, the court reasoned that the use of blocking directors is generally permissible. The provision in this case, however, contracted away the fiduciary duty on the part of the blocking director, and that is impermissible.[4] The debtor granted a mortgage and assignment of rents to BCL – Bridge Funding (“BCL”) to secure a loan and a line of credit given by BCL to the debtor.[5] The debtor defaulted on his payment and created a Third Amendment establishing BCL as a “Special Member” with the right to approve or disapprove any material action by the debtor.[6] The provision requires the debtor to obtain BCL’s consent, which can be withheld for any reason, before filing for bankruptcy.[7] The agreement also contained a waiver of the fiduciary duty owed by the special member to the debtor by stating that BCL was not obligated to consider any interests but their own and has no obligation to give any consideration to the debtor’s interests.[8] When the debtor filed for bankruptcy, four out of five creditors voted in favor of the filing, with BCL withholding its vote.[9] BCL, in its motion to dismiss the debtor’s chapter 11 case, argued that the debtor was not authorized to file for Chapter 11 bankruptcy because the debtor did not have the consent of the blocking director.[10]

Bankruptcy Courts Lack Authority to Involuntarily Substantively Consolidate Debtor with Nonprofit Non-Debtor

By: Eileen Ornousky

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Although bankruptcy courts have broad equitable powers, including the power to substantively consolidate debtors, these powers cannot be used to circumvent other sections of the Bankruptcy Code. Substantive consolidation pools separate legal entities’ assets and liabilities and allows each entity’s liability to be satisfied out of the common pool of assets.[1] In In re Archdiocese of Saint Paul and Minneapolis,[2] the United States Bankruptcy Court for the District of Minnesota held that it lacked the authority to substantively consolidate the debtor Archdiocese with over 200 Catholic nonprofit, non-debtor entities.[3] Additionally, the Court stated that even if it had the authority to do so, the Archdiocese and the other entities were not sufficiently interrelated to warrant consolidation.[4]

Publication Notice Satisfies Due Process for Unknown Future Asbestos Claimants

By: Colleen Angus-Yamada

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Almost thirty years after the Bankruptcy Court for the Southern District of New York confirmed the Chapter 11 plans of Johns-Manville Corporation (“Manville”) and Manville Forest Products (“MFP”), pursuant to which creditors were enjoined from pursuing asbestos claims against them, a plaintiff sought to recover from Graphic Packaging International (“Graphic”), a purported successor of MFP. In In re Johns-Manville Corp.,[1] the Bankruptcy Court enjoined Ms. Berry from pursuing asbestos claims arising from her exposure to asbestos on her husband’s work clothes.[2] According to the Bankruptcy Court, because Graphic is a successor of MPF, a bankruptcy debtor and a wholly-owned subsidiary of Manville, Ms. Berry must first pursue her asbestos claims against the Manville Personal Injury Trust (the “Trust”) in accordance with the Chapter 11 Plan (the “Manville Plan”).[3]

Courts Override Underlying Contractual Obligations in the Chapter 11 Surrender and Abandon of Aircraft Equipment and Vessels

By: Lisa Strejlau

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In Chapter 11 airline cases, a court will typically balance the interests of debtors and creditors in determining the method, timing and condition of collateral returns and whether or not the parties must comply with the underlying contractual obligations. In In re Republic Airways Holdings, Inc.,[1] the United States Bankruptcy Court for the Southern District of New York held that a debtor is not required to comply with underlying contractual requirements for the return of aircraft and engines as collateral.[2] After filing for Chapter 11, Republic Airways Holdings, Inc. (“Republic”) sought to surrender or abandon certain aircrafts and engines subject to liens of Citibank, pursuant to an agreement to secure Republic’s obligations with respect to a credit and guaranty agreement.[3] Republic moved for an order authorizing them to (i) transfer title to and abandon certain aircrafts and engines and reject a related aircraft lease, and (ii) to fulfill their obligations under a certain engine purchase agreement and directing Citibank to cooperate with the closing of that agreement.[4]