Converting a Chapter 7 to a Chapter 13
June 27, 2006
It has been a prevailing view in practice under the Bankruptcy Code that a Debtor has an absolute one-time right under Section 706(a) to convert a case from Chapter 7 to another Chapter, the most common scenario involving conversion from Chapter 7 to Chapter 13. However, two recent circuit level cases, reflecting the case law trend, have found that a motion to convert a Chapter 7 to a Chapter 13 may be denied if not made in good faith.
Pitfalls of Critical Vendor Litigation
June 27, 2006
The latest development in 'critical vendor' litigation occurred in the case where much of it began ' the Kmart Corporation bankruptcy case. On April 12, 2006, United State Bankruptcy Judge Susan Pierson Sonderby denied motions to dismiss lawsuits seeking the return of critical vendor payments, paving the way for the cases to proceed to trial. Although Judge Sonderby's decision was not published, this latest chapter of the Kmart story is worth noting.
Enron Court Says Transferred Claims Remain Tainted
June 27, 2006
two recent decisions by the Bankruptcy Court for the Southern District of New York serve to reemphasize a maxim well known to those regularly involved in the distressed debt industry. Participants in the market for distressed claims must be aware of the inherent risks and uncertainties in dealing with post-petition debtors, and they must protect themselves accordingly.
The Tarnished Parachute
May 30, 2006
As American companies struggle to compete in a global market, they are increasingly considering the merits of eliminating or reducing costly retiree benefits. For many companies, the costs of these benefits have become staggering. For example, before recently announcing plans to freeze health benefits for tens of thousands of its white-collar retirees, Ford Motor Co. was facing health-care expenses of more than $3.5 billion. Its rival, General Motors, which according to recent reports owes a projected $89 billion in welfare and pension benefits to its current and future retirees, just announced that it will offer workers with 10 years' experience a payment of $140,000 and a pension, if in return these workers will leave their employment and forgo health care benefits.
Bankruptcy Battleground
May 30, 2006
Whether an arbitration clause in a contract will be enforced by the bankruptcy courts in accordance with the Federal Arbitration Act has been the focus of numerous court decisions in recent times. The consensus among most courts addressing the issue has been that a bankruptcy court can adjudicate a dispute otherwise subject to binding arbitration if the dispute falls within the court's 'core' jurisdiction. Even so, rulings recently handed down by the Second and Third Circuit Courts of Appeal suggest that the scope of a bankruptcy court's retained discretion in this area may be even less broad than is generally understood.
The Absolute Priority Rule
May 30, 2006
Debtors in bankruptcy cases have long sought to make distributions to old equity without running afoul of the absolute priority rule. Time and again, debtors' efforts to leave old equity with value in a reorganized entity have been challenged in the appellate courts, and often in the Supreme Court. A proposed distribution to old equity in the complex Armstrong World Industries (AWI) case was struck down recently by the U.S. Court of Appeals for the Third Circuit Court. <i>In re Armstrong World Indus., Inc.</i>, 432 F.3d 507 (3rd Cir. 2005).
Post-Petition Enforcement
May 30, 2006
Generally speaking, after a bankruptcy filing, executory contracts are not enforceable against a debtor that has not yet assumed the contract. <i>N.L.R.B. v. Bildisco and Bildisco</i>, 465 U.S. 513, 531 (1984). However, the reverse is not true. During the pre-assumption period, the non-debtor party to the contract is presumed to be obligated to perform in accordance with a contract.
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May 30, 2006
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