BCLP Global Restructuring & Insolvency Developments

Global Restructuring & Insolvency Developments

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Spring Cleaning, Avoidance Actions, and Time to Tweak the Loan Forms, Just In Case

April 3, 2015

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Winter is over; time for spring cleaning. Alas, your authors are so desperate to put off such drudgery that they decided to write about avoidance actions, and form language for notes and security agreements. If you represent lenders, try taking five from the cluttered garage, dust-bunnied closet, or bursting kitchen junk drawer, and read this; you may save your lender client a buck or two.

The Basics: Workout lawyers all agree on certain principles. For instance, fully secured creditors with undisputed claims deserve to be paid. Further, if the collateral value exceeds the amount of the secured creditor’s claim then payment must include interest, costs, and attorneys’ fees, if the loan documents so provide.[1]

The Wrinkle: But add a wrinkle – the kind of wrinkle rarely considered when structuring a loan, in the glorious salad days of the lending relationship. That wrinkle: Upon the obligor’s bankruptcy, what if

Voidable If Not Fraudulent — NCCUSL Approves the Uniform Voidable Transactions Act

In July 2014, the National Conference of Commissioners on Uniform State Laws (NCCUSL) approved the Uniform Voidable Transaction Act (UVTA), a long-awaited update to the Uniform Fraudulent Transactions Act (UFTA). As the new title suggests, the UVTA, like the UFTA before it, encompasses a broader range of transactions than those traditionally deemed fraudulent and therefore avoidable under the common law. The amended Act clarifies and expands the burden of proof as well as presenting new challenges and opportunities to creditors seeking to avoid transfers by debtors operating under insolvent conditions. This development also has importance for creditors with claims in bankruptcy due to the bankruptcy trustee’s power to bring avoidance actions based on state law under 11 U.S.C. § 544(b) and thereby increase the assets available to repay debts.

Under the amended Act as before, creditors bringing constructive fraudulent transfer claims have the ability to avoid transactions which deprive the

Case Updates: Glaski v. Bank of America  and Sandri v. Capital One

The California Court of Appeal for the Fifth Appellate District has held that a borrower has standing to state a claim for wrongful foreclosure based on the alleged improper securitization of the borrower’s note and deed of trust. Glaski v. Bank of America, N.A., et al., 218 Cal. App. 4th 1079 (Cal. App. 5th Dist. 2013). This is a minority view. Rejecting both the holding and reasoning of the Glaski court, and adopting the majority view, the U.S. Bankruptcy Court for the Northern District of California reached a contrary conclusion. Sandri v. Capital One, N.A., et al. (In re Sandri), No. 12-3165DM, 2013 WL 5925655 (Bankr. N.D. Cal. Nov. 5, 2013).

I. Glaski v. Bank of America, N.A., et al., 218 Cal. App. 4th 1079 (Cal. App. 5th Dist. 2013)

Factual Background and Procedural History:

In mid-2005, appellant Glaski obtained a purchase money loan from lender Washington Mutual Bank, FA

When is a financing statement that is no longer effective, still effective? When it lapses in bankruptcy, of course!

October 8, 2014

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The 11th circuit is becoming easier on lenders who forget to continue financing statements post-bankruptcy, thanks to a recent Middle District of Florida Bankruptcy Court ruling in March in the Colony Resort bankruptcy. In re Colony Beach & Tennis Club Association, Inc., Case No. 13-00348, Bankr. M.D. Fla. (March 21, 2014). Colony Resort is a development in Longboat Key on the Gulf of Mexico, built in 1973. The resort had fallen on hard times, due in large part to condominium owner refusals to pay assessments, which in turn prevented needed renovations. The resort closed in 2010, followed by the bankruptcy filings of the resort’s related entities.

The entity that ran the resort was Colony Beach and Tennis Club, Ltd (the “Club”). The Club’s primary asset is a potential recovery in a pending lawsuit against the home owners’ association (the “Association”) for refusing to pay assessments. The Club’s primary secured creditor

Being Sued by the Client You Never Knew You Had

Attorneys with secured lenders for clients may one day find themselves in the following hypothetical scenario: An attorney represents a secured lender in the workout of a loan that is owed by a small distressed borrower. The borrower finds a buyer for its assets (either in a § 363 sale or out-of-court short sale), and the borrower and buyer agree upon the basic terms of the sale transaction. However, the borrower’s counsel does not have the experience, time or resources to draft the sale transaction documents, so the responsibility to “just get it done” falls on the secured lender’s attorney, whose client has the biggest economic stake because it will likely receive most of the sale proceeds.

After the deal closes, it turns out that the borrower is subject to tax claims that could have been avoided if the sale had been done another way, or the borrower is stuck

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