Commercial Restructuring & Bankruptcy Alert - June 2013

In this issue:

- Make–Whole Claim in the Amount of 37% of Loan Balance is Enforced by Delaware Bankruptcy Court

- Seventh Circuit Requires Competition for Insider’s New-Value Plan of Reorganization

- Following Castleton Plaza, Competitive Bidding Required Where Insider Asserts ‘New Value’ Exception to Absolute Priority Rule

- Fourth Circuit is the First to Hold Absolute Priority Rule Applicable to Individual Chapter 11 Debtors

- Tenth Circuit Joins Fourth Circuit in Holding that Absolute Priority Rule Applies to Individual Chapter 11 Cases

- Court Affirms Separate Classification, Holds Artificial Impairment Not Per Se Impermissible

- Debtor Had Legitimate Business Reason to Separately Classify Unsecured Claims

- Venue Created by Subsidiary Incorporation ‘Bootstraps’ Venue Selection

- Seventh Circuit Overturns Veil-Piercing

- Subtenant Retains Possessory Rights Under Section 365(h) Despite Explicit Free and Clear Section 363(f) Sale

- Asset Purchaser is Subject to Successor Liability for FLSA Judgment, Despite Specific Disclaimer of Liability

- Comity Outweighed by Significant Differences in Law in Chapter 15 Case

- Seventh Circuit Rules Rejection of Executory Trademark License Does Not Terminate the License, Creates a Split of Authority

- Post-Petition Lock-Down Agreement Does Not Equate to Impermissible Vote Solicitation

- Defrauded Initial Lien Holder Maintains Priority over Subsequent Innocent Lenders

- Mortgage Foreclosure is ‘Debt Collection’ Under Fair Debt Collection Practices

- Exit Lenders Liable for Conversion Where Distributions Contravene Credit Agreement

- Beware the Credit Overbid

- Bank Loses Possessory Lien Following Turnover of Funds to Trustee – Should Have Sought Adequate Protection

- Creditor Defeats Preference Action Based on ‘New Value’ Defense

- A Longer Statute of Limitations Period for Pursuing Fraudulent Transfer Actions May Exist

- Trustee Fails to Carry Burden, Court Affirms Pre-petition Transfers to Cover Check-Kiting Losses Not Avoidable Preference

- Ninth Circuit Joins Majority, Holds Unstayed Judgments Not ‘Bona Fide

- Counsel’s Corner: News From Reed Smith

- Excerpt from: Make–Whole Claim in the Amount of 37% of Loan Balance is Enforced by Delaware Bankruptcy Court:

Good news for lenders. Judge Carey of the Bankruptcy Court for the District of Delaware enforced a make-whole premium equal to 37 percent of the outstanding principal balance on a loan. He determined that, under New York state law, the calculation was not “plainly disproportionate” to the lender’s possible loss and was negotiated at arm’s length between sophisticated parties. In addition, Judge Carey held that a make-whole claim was not equivalent to “unmatured interest,” which is unauthorized under Section 502 of the Bankruptcy Code, but instead was a claim for liquidated damages. This is an important and favorable decision for lenders, especially in the current low interest rate environment. The case is In re School Specialty, Inc., No. 13-10152 (Bankr. D. Del. April 22, 2013).

Please see full newsletter below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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