Section 105(a) of the Bankruptcy Code provides that a bankruptcy court “may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a). In the Caesars bankruptcy, the Seventh Circuit explored the breadth of a court’s rights to take action under this section. The Seventh Circuit held that section 105(a) permits the Bankruptcy Court to issue an injunction with respect to litigation pending against the debtors’ non-debtor parent. The Court of Appeals did not ultimately determine whether the stay should in fact be granted because “that’s an issue for the bankruptcy judge to resolve in the first instance;” rather, it held that the Bankruptcy Court and District Court had erred in interpreting section 105(a) too narrowly in denying the stay sought by the debtors. In re Caesars Entm’t Operating Co., Inc., No. 15-3259, 2015 WL 9311432 (7th Cir. Dec. 23, 2015).
Posts by: Editorial Board
Foreign Debtors’ Access to U.S. Bankruptcy Courts: Expansion of “Property in the United States” Definition in Chapter 15 Cases
When is a foreign entity eligible to file a chapter 15 petition? This question has been the subject of debate over the last few years, and Judge Martin Glenn’s recent opinion in In re Berau Capital Resources Pte Ltd. will add to this debate. Although the debtor in the case was foreign and did not have a place of business in the United States, Judge Glenn concluded that the debtor had satisfied the eligibility provisions under section 109(a) of the Bankruptcy Code because the New York choice of law and forum selection clause in the underlying bond indenture rendered the bonds “property in the United States.” No. 15-11804 (MG), 2015 WL 6507871 (Bankr. S.D.N.Y. Oct. 28, 2015).
Supreme Court Rules Against Fees For Fee Application Defense
Issuing its third bankruptcy ruling in a month, the Supreme Court held, by a 6-3 margin, that the Bankruptcy Code does not permit awarding fees to debtor’s counsel, when counsel incurred those fees defending its own fee application. The Court held that services defending fee applications were not rendered to the debtor’s estate, and therefore the fees did not constitute “actual, necessary services” payable under section 330(a)(1) of the Bankruptcy Code as reasonable compensation. This decision could increase leverage on parties seeking to rein in bankruptcy litigation by threatening to challenge attorney’s fees. Baker Botts L.L.P. et al. v. ASARCO LLC, No. 14-103, 2015 WL 2473336 (S. Ct. June 15, 2015) (hereinafter, the “Opinion”).
Oregon Bankruptcy Court Denies Administrative Priority Status to Potential DIP Lender for Breakup Fee Claim
On April 8, 2014, Chief Bankruptcy Judge Frank R. Alley, III for the United States Bankruptcy Court for the District of Oregon found that Sunstone Business Finance, LLC’s claim against debtor C&K Market, Inc. did not constitute an administrative expense claim. The claim arose from a breakup fee for proposed DIP financing after C&K selected an alternative DIP lender.
The Court denied Sunstone’s request for an administrative claim for two reasons. First, the Court found that the breakup fee did not arise from a transaction with a debtor in possession because the parties executed the DIP term sheet prepetition. Second, the Court found that Sunstone, as a potential lender, did not provide a direct and substantial benefit to the estate because the alleged benefits either occurred prepetition or were too indirect and intangible to qualify for priority treatment. If this opinion were to gain acceptance beyond this case, it could chill prepetition offers to serve as new DIP lenders, or possibly even affect the market for stalking horse bidders in a section 363 sale. In re C&K Market, Inc., No. 13-64561-fra11 (Bankr. D. Or. Apr. 8, 2014) [Dkt. No. 786]. Read More.
Following Chapter 9 Plan, Monoline Insurer Must Continue to Make Payments on Old Bonds
Earlier this month, Judge Judith J. Gische of the Appellate Division of the Supreme Court of New York, First Judicial Department found that ACA Financial Guaranty Corporation, as bond insurer, must make future, post-confirmation principal and interest payments on municipal bonds issued pre-bankruptcy. The Court required these payments despite the fact that the bonds were exchanged for new bonds and cancelled under the municipality’s chapter 9 plan. The Court held that “neither the plan of debt adjustment nor the discharge of the bond debt in the bankruptcy proceeding changed the obligations under the parties’ contracts of insurance.” This decision is an unequivocal win for holders of distressed municipal bonds wrapped by monoline insurance policies and makes clear that insurers must continue to extend coverage to bondholders after a municipal issuer files for chapter 9 and obtains a discharge of the bond debt in bankruptcy. This outcome may impact negotiations and potential resolutions in Detroit’s chapter 9 case and other recent municipal bankruptcies and distressed scenarios, such as Puerto Rico. See Oppenheimer Amt-Free Municipals v. ACA Fin. Guar. Corp., 2013 N.Y. App. Div. LEXIS 5688, at *4 (N.Y. App. Div. 1st Dep’t Sept. 3, 2013).