Commercial Restructuring & Bankruptcy Alert - October 2014

by Reed Smith
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In this issue:

- Judge Says That Stockton, California Can Cut Pension Obligations

- Third-Party Releases – Better Make Sure They Are Adequately Disclosed

- Lawyers Who Sign Proofs of Claims for Clients May Be Waiving the Protections of the Attorney-Client Privilege and the Work Product Doctrine

- Cross-Border Insolvency: The Rise of the Scheme of Arrangement

- En Banc 8th Circuit Finds Trademark License Agreement Executed with APA Not an Executory Contract

- LLC Right of First Refusal an Executory Contract

- Lender Not Entitled to Pre-Petition Default Interest Due to Failure to Exercise Option to Accelerate

- New Value Contribution By Itself Not Enough To Satisfy New Value Exception

- Court Finds Debtor Gerrymandered Trade Creditor Class, Rejects ‘Legitimate Business Justification’ Rationale

- Troubling Actions of Chapter 15 Foreign Representative Do Not Rise to Statutory Conditions to Withdraw Recognition

- Prospective DIP Lender Allowed Break-Up Fee, But Not Administrative Priority

- Court Rejects Creditor’s Complaint Seeking Recharacterization

- Oversecured Creditor Awarded Post-Petition Interest at Contractual Default Rate

- Untimely Recorded Mortgage Costs Refinance Lender in Preference Action, Earmarking Doctrine Not Applicable

- Denying Motion to Dismiss, Court Finds Subsidiary Exerted

Control over Parent, Creating Fiduciary Duties

- Creditor Not Required To Credit Debtor for Amounts Received from Non-Debtors Until Paid in Full

- Bankruptcy Court Refuses to Dismiss Debtors’ Adversary Complaint Alleging Lender Note Sale Scheme

- Assignment of Loan to Hedge Fund Violated Agreement Terms; Subsequent Assignment to Three Funds Also Disallowed

- Multiple Agreements Do Not Constitute a Single Integrated Contract, Allows Debtor To Assume Just One Contract

- Court Upholds Mortgage Dragnet Clause

- Section 511(a) Protection Upheld for Tax Claim Certificate Holders

- Counsel’s Corner: News from Reed Smith

- Excerpt from Judge Says That Stockton, California Can Cut Pension Obligations:

On October 1, 2014, the bankruptcy judge overseeing the chapter 9 proceeding of Stockton, California observed from the bench that the city can cut pension obligations. In a statement made during plan confirmation proceedings, the judge said he believed that Stockton could exit the state’s retirement system by rejecting its contract and restructure about $1.6 billion in unfunded pension liabilities as part of a plan of adjustment. In addition, he said that any lien that the retirement system would have resulting from such rejection could be avoided. The judge believes that the federal bankruptcy laws control over state law which prohibits California cities from repudiating pension fund payments. In response to the ruling, CalPERS, the state public employee retirement system, says it disagrees with the judge’s comments and that the comments do not have an immediate effect in the Stockton chapter 9 case since the judge will not rule on whether Stockton’s plan is confirmable until later this month. The City’s current proposed plan does not seek to impair its obligations to CalPERS or to its retired employees. Stay tuned!

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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