In this issue:
- Detroit Gets a Fresh Start and Pension Debt is at Risk
- UK Supreme Court Finds Certain Pension Liabilities Are Not Entitled to Priority Treatment, in Nortel and Lehman Decisions
- Amount of Credit Bid Must Be Included in Calculation of Quarterly Fee
- Delaware Chancery Court Evaluates ‘Public, Commercially Reasonable’ Foreclosure Sale Under UCC
- Parent Obligor Can Pledge Subsidiary’s Collateral with Subsidiary’s Knowledge and Consent
- Lender’s Use of Debtor’s Valuation Judicially Estops Lender from Making Value Objection
- Bondholders Bound by ‘No Action’ Clause in Unitranche Financing Documents
- Excerpt from Detroit Gets a Fresh Start and Pension Debt is at Risk:
Bankruptcy Judge Steven Rhodes ruled from the bench on December 3, 2013 (followed by a written opinion on December 5, 2013) that Detroit is eligible for bankruptcy protection, allowing the city to attempt to restructure $18.5 billion of debt. Thus begins the largest American municipal bankruptcy case. After nine days of trial, the judge ruled that although the city did not negotiate in good faith prior to bankruptcy, it was impossible for the city to do so. He concluded that the city was insolvent, it desires to effect a plan that adjusts its debts, and it filed its bankruptcy petition in good faith. In addition, in an equally important ruling, Judge Rhodes ruled that even though the Michigan Constitution provides that pension rights may not be “impaired or diminished,” pension debt has no greater protection than ordinary contract debt and can be subject to impairment in a federal bankruptcy proceeding. He cautioned, however, that he will not lightly exercise the power under the federal bankruptcy law to impair such pension debt. Appeals on both rulings are expected, perhaps directly to the Court of Appeals for the Sixth Circuit.
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