BCLP Global Restructuring & Insolvency Developments

Global Restructuring & Insolvency Developments

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Bankruptcy Trustees Receive Early Holiday Present – a Circuit Level Win Against Colleges in the Tuition Clawback Cases

 

We here at the Global Restructuring & Insolvency Developments (GRID to our friends) have been following the tuition clawback wars for a few years – the cases in which a bankruptcy trustee sues a college to return tuition that the bankrupt parent paid for  their child when the parent was otherwise stiffing other creditors.  It is a textbook constructively fraudulent transfer because the parent(s) do not receive reasonably equivalent value (or anything, for that matter) for the payment of the kid’s tuition.  Our prior coverage is here and here.  (And for those of you who want to really geek out on this, here’s a video of an entire symposium panel on the topic, from our friends at the Emory Bankruptcy Developments Journal.)

Anywho, yesterday the First Circuit decided the long-awaited appeal in DeGiacomo v.

Five Tips for Avoiding a Catastrophic Loss From a Customer’s Bankruptcy

Editor’s note:  Our New York partner Stephanie Wickouski originally posted this fundamental yet insightful list of reminders for suppliers, wholesalers, and other vendors which continue to deal with retail distress on BCLP’s Retail Law Blog, one of the leading cross-disciplinary blogs on all legal issues affecting the retail and consumer products world.   If you live in retail, subscribe over there, too – you won’t regret it!

 

One day, you get a notice in the mail that an important customer has filed chapter 11. Your customer recently paid $250,000 on invoices that were delinquent for several months and still owes you $500,000. The customer, a brick-and-mortar store, sent form letters to its vendors expressing optimism that the chapter 11 process will allow the store to continue to operate while it locates a buyer which will continue to operate the store.

A few weeks

SCOTUS Clarifies What Happens When a Trademark Licensor Files Bankruptcy

Trademark licensors and licensees, as well as their stakeholders (including lenders), should heed the U.S. Supreme Court’s decision in Mission Product Holdings, Inc. v. Tempnology, LLC n/k/a Old Cold, LLC, No. 17-1657.  The Justices resolved a long-standing question arising from the intersection of bankruptcy and trademark law: whether a debtor/licensor’s rejection of a trademark license terminates the licensee’s right to use a trademark after rejection.  In an 8-1 decision, the Justices answered: “no,” rejection simply creates a breach, but not rescission.  If the license or applicable law grant continuing rights to the licensee upon a breach by the licensor, rejection under the Bankruptcy Code does not alter or terminate such continuing rights.

Section 365(a) of the Bankruptcy Code (11 U.S.C. § 365) is the starting point of the analysis (but critically, not the ending point as discussed below).  Section 365(a) permits debtors in bankruptcy to “assume

A step forward – the FirstEnergy Solutions court comes to the commonsense conclusion that steel forges aren’t “forward contract merchants.”

Thomas Paine would be proud of this Court’s commonsense approach to the Bankruptcy Code

 

In the In re FirstEnergy Solutions Corporation bankruptcy cases,[1] the court recently issued an opinion narrowing the number of situations in which a fixed-price supply agreement (used to hedge against rising input costs and constituting a “forward contract” in bankruptcy parlance) will be treated as an exception to the general rules governing “executory contracts”[2] in chapter 11 bankruptcy cases.

The “automatic stay” under section 362 of the Bankruptcy Code usually prevents a contract counterparty from terminating an executory contract without first getting court approval (i.e., relief from the automatic stay); this is true even if the contract provides it may be terminated upon the filing of

Distressed Step-In as a Remedy for UK Lenders

This article first appeared in Corporate Rescue & Insolvency, December 2018.

Key points

  • Step-in is a versatile tool which gives a lender the right, in certain circumstances, to step-in to a contract between a borrower and its contractual counterparty, and to perform the borrower’s part of the bargain to keep the contract alive.
  • It can have much less impact on the actual project or development than the commencement of formal insolvency proceedings, thereby minimising loss.
  • Step-in won’t be right for all situations (or for all lenders) and, where there is distress, additional risk factors need to be brought in to a consideration of the lender’s options.

Introduction

Step-in is a self-help remedy. It is a creature of contract and, in a finance structure, gives lenders the right, in certain circumstances, to step-in to a contract between a borrower and its contractual counterparty, and perform the borrower’s part of

HELOC Notes Found to be Nonnegotiable Under Florida Law

August 6, 2018

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Editors’ Note:  While we love complex restructuring and insolvency proceedings, a plain old suit on a note must be handled correctly as well (that did not happen in the case below).  Jonathon Nicol in BCLP’s Kansas City office handles credit litigation around the country with expertise.  Every aspect of commercial litigation must be studied and mastered – consider this a cautionary tale, and feel free to call Jonathon to take advantage of his mastery of these topics.  

In Third Fed. Sav. & Loan Ass’n of Cleveland v. Koulouvaris, No. 2D17-773, 2018 WL 2271112 (Fla. 2d DCA 2018), Florida’s Second District Court of appeal analyzed, in the context of trial exhibit authentication, whether the note for a home equity line of credit (“HELOC”) was negotiable.

The Second District Court of Appeal considered whether it was proper for the Pasco County, Florida trial court to involuntarily dismiss Third Federal’s claim for foreclosure of a HELOC

Fifth Circuit Affirms Dismissal of Bankruptcy Case Due to Lack of Corporate Authority to File (and provides a blueprint for veto powers over bankruptcy filings?)

On June 14, 2018, the United States Court of Appeals for the Fifth Circuit issued a revised opinion that held that Federal law does not prevent a bona fide shareholder from exercising its right to vote against a bankruptcy petition just because it is also an unsecured creditor. In re Franchise Servs. of N. Am., Inc., 891 F.3d 198, 203 (5th Cir. 2018), as revised (June 14, 2018).

Franchise Services of North America, Inc. (“FSNA”) was once one of the largest rental car companies in North America. Id. at 203.  In 2012, FSNA desired to purchase Advantage Rent-A-Car and enlisted an investment bank, Macquarie Capital (U.S.A.), Inc. (“Macquarie”), to assist. Macquarie created a fully-owned subsidiary, Boketo, LLC (“Boketo”), to make a $15 million investment in FSNA.

In exchange for the capital infusion, FSNA gave Boketo 100% of its preferred stock in the form of a convertible preferred equity instrument.

Reverse Mortgage Update: New York Law Mandates New Foreclosure Notices and Certificate of Merit

Editors’ Note:  While this post is not a per se bankruptcy issue, matters on consumer financial services are always in the curtilage of bankruptcy and the U.S. Bankruptcy Code.  Our BCLP consumer financial services colleague Cathy Welker is an expert in this area, advising banks, servicers, and other financial institutions on the Byzantine regulatory world they face, not only in New York where she practices but also at the federal level.  Likewise, BCLP’s Dallas office enjoys the benefits of Greg Sachnik, a former senior banking executive deep in the front lines of TILA, RESPA, deceptive trade practices, wrongful foreclosure, and fair debt collection.  We appreciate seeing this update from them, especially as reverse mortgage issues grow exponentially – according to one study, reverse mortgage foreclosures increased by over 600 percent in recent years.  So we are pleased to re-publish it here, and for you to read

State Court Default Judgment Estops Debtor from Contesting Former In-laws’ Action to Deny Discharge in Later Bankruptcy (with bonus practice pointers!)

Just last month, the Bankruptcy Cave reported upon a Southern District of Texas case in which a debtor was denied discharge of a debt owed to an old (and likely former!?!) friend from church who had been required to pay off a student loan made to the debtor which the friend had guaranteed.  Today we report another case involving friends and family and non-dischargeable student debt from the U.S. Bankruptcy Court for the Eastern District of Michigan.

The case, Ramani v. Romo (In Re Romo), Ad. Pro. No. 17-2107-dob (link for you here), was recently resolved by way of summary judgment for the plaintiffs, the debtor’s former in-laws.  As set forth in the May 14, 2018 opinion of Judge Daniel S. Opperman, the debtor entered her marriage

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