Must New Value Remain Unpaid to Serve As a Defense to a Preference Action?
March 29, 2005
Does subsequent new value need to be unpaid to constitute a defense to a preferential transfer under section 547(c)(4)? The issue arises when a creditor asserts the subsequent new value defense to a preference action, on the basis that additional credit (goods or services) was extended after the preferential transfer occurred, even if the subsequent new value was paid for by the debtor. With every decade comes a new wrinkle in the discussion on whether the subsequent new value provided must remain unpaid. The issue has been resurrected recently due to the frequency of critical vendor orders authorizing the post-petition payment of pre-petition debt and debtors-in-possession agreeing to pay reclamation claims in exchange for keeping the goods.
A Model for Canadian Cross-Border Insolvency
March 29, 2005
The trend toward commercial globalization has led to an increase in the number and complexity of cross-border bankruptcy cases. The ability to overcome differences in legal systems, often through the cooperation and coordination of courts in different countries, can be a key factor in the success or failure of a restructuring.
Chapter 11 Transfer Tax Exemption Expanded by the Eleventh Circuit
February 24, 2005
The ability to sell assets during the course of a Chapter 11 case without incurring transfer taxes customarily levied on such transactions outside of bankruptcy often figures prominently in a potential debtor's strategic bankruptcy planning. However, the circumstances under which a sale or related transaction qualifies for the tax exemption has been a focal point of dispute for many courts, including no less than four circuit courts of appeal. A ruling recently handed down by the Court of Appeals for the Eleventh Circuit fuels this growing controversy in a way that may encourage Chapter 11 debtors to rethink the way that they structure plans of reorganization.
Production Resources Decision
February 24, 2005
In the current environment of increasing scrutiny of corporate behavior after corporate scandals such as Enron and WorldCom, lawsuits brought by creditors for breach of the fiduciary duties owed to them by officers and directors have increased significantly. The suits are taking center stage on the dockets of bankruptcy courts and state courts alike, and receive much public attention across the country. Against this backdrop, the Delaware Court of Chancery's November opinion in <i>Production Resources Group, L.L.C. v. NCT Group, Inc.</i>, __ A.2d __ (Del. Ch. 2004); C.A. No. 114-N, 2004 Del. Ch. LEXIS 174 (Del. Ch. Nov.) is likely the most important pronouncement on the nature of fiduciary duty claims brought by creditors since the Court of Chancery's 1991 opinion in <i>Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp.</i>, C.A. No. 12150, 1991 WL 277613 (Del. Ch. Dec. 30, 1991).
Can the Marshalling Doctrine Rescue Reclaiming Creditors?
February 24, 2005
Some courts deny relief under Section 546(c) of the Bankruptcy Code to a vendor holding a valid reclamation claim where a secured lender holds a floating lien on after-acquired inventory. In such cases, no administrative expense claim or replacement lien is granted to the vendor. This occurs even when the secured lender is oversecured. This article poses the question as to whether pursuant to Sections 544(a) and 546(c) of the Bankruptcy Code the equitable doctrine of marshalling should apply to provide relief to a reclamation creditor where a secured lender holding a lien on substantially all of the debtor's assets, including floating lien and after-acquired inventory, is oversecured. A plain reading of Sections 544(a) and 546(c) of the Bankruptcy Code suggests that a reclaiming creditor may be able to invoke the marshalling doctrine under these circumstances.
The Wrong Box: <i>U.S. v. Martignon</i> Not a Copyright Case
January 27, 2005
A prominent court, the U.S. District Court for the Southern District of New York, has rendered what may become a prominent opinion in the copyright arena, <i>U.S. v. Martignon</i>, No. 03 Cr. 1287 (S.D.N.Y. Sept. 27, 2004). Unfortunately, the analysis in the decision misses the essential point that the issue was not really one of copyright.
The Devil in the Details
January 25, 2005
Last month, we discussed the fact that in theory, a borrower's issuance of junior secured debt is a boon for its senior secured lender. In practice, however, we pointed out that a senior secured lender should view proposed junior secured financing skeptically because the existence of such debt can become highly problematic for the senior lender. In Part Two, we continue our discussion, which focuses on additional elements and negotiating points that an inter-creditor agreement should contain.
