Corporate Bankruptcy Law: Latest Need-to-Know from JD Supra

[Link: Bill on Bankruptcy: Who’s to Blame for the Hostess Liquidation? – Bloomberg Law]

The impending dissolution of Hostess Brands – maker of Twinkies, Ho Hos, and Wonder Bread – has captured headlines over the past few weeks. But Hostess’s story isn’t the only bankruptcy law news of relevance to Corporate America.

For your reference:

Limiting Private Equity Fund Exposure to the ERISA Obligations of Portfolio Companies (Pillsbury Winthrop Shaw Pittman LLP):

In welcome news for private equity (“PE”) funds, a recent district court opinion determined that two PE funds and their bankrupt portfolio company were not a ‘controlled group’ and thus the PE funds were not responsible for pension liabilities at the portfolio company. The decision … explicitly rejected a prior Pension Benefit Guaranty Corporation ruling on the same question and illuminated best practices for structuring future PE fund investments.” Read on>>

(Also see updates on this story by: Dechert LLP, McDermott Will & Emery, and Osler, Hoskin & Harcourt LLP.)

Supreme Court to Address Circuit Split Over ‘Defalcation’ Meaning (Duane Morris LLP):

“In a corporate system based in part on the separation of ownership and control, the relationship between principals and agents is riddled with agency problems: Among them are potential conflicts of interest where agents may abuse their fiduciary position for their own benefit as opposed to the benefit of the principals to whom they are obligated.” Read on>>

House Financial Services Committee Releases Staff Report on MF Global (Katten Muchin Rosenman LLP):

“The US House of Representatives Financial Services Subcommittee on Oversight and Investigations has released a report on the collapse of MF Global (Report). The Report finds that Jon Corzine, MF Global’s Chairman and CEO, made a number of decisions that ultimately caused MF Global’s bankruptcy.” Read on>>

Eighth Circuit Rules That a “Perpetual” Trademark Licensing Agreement Is an “Executory” Contract Subject to Rejection Under Bankruptcy Code Section 365 (Cadwalader):

“The United States Court of Appeals for the Eighth Circuit recently ruled that a perpetual, royalty-free, and exclusive trademark licensing agreement qualified as an executory contract subject to assumption or rejection under section 365 of the Bankruptcy Code. The Eighth Circuit’s ruling is seemingly at odds with a 2010 decision by the Third Circuit which found an extremely similar licensing agreement to be non-executory.” Read on>>

Fifth Circuit Expected To Issue Landmark Ruling Concerning Recognition of Foreign Bankruptcy Proceedings Contrary to US Public Policy (Sheppard Mullin Richter & Hampton LLP):

“In a widely followed dispute, the Fifth Circuit Court of Appeals will soon render a decision on the appeal of a Texas Bankruptcy Court’s refusal to recognize non-debtor third party releases in the Mexican reorganization proceeding (concurso mercantil) of Mexican glass manufacturer Vitro SAB de CV. Wall Street and the capital markets will be watching this appeal closely as a reversal of the Bankruptcy Court would likely make lenders and bondholders extremely nervous about extending future credit to Mexican corporations.” Read on>>

Sunbeam Products, Inc. V. Chicago American Manufacturing, LLC (Patterson Belknap Webb & Tyler LLP):

“The U.S. Court of Appeals for the Seventh Circuit in Chicago has issued a decision with significant implications for licensees of trademarks whose licensors become debtors in bankruptcy. In Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, the Court considered whether rejection of a trademark license in bankruptcy deprives the licensee of the right to use the licensed mark.” Read on>>

Loan Group Warns Over Creditors’ Bankruptcy Rights (Bernstein Shur):

“The primary industry group for the corporate loan market warned that any attempt to limit the rights of secured creditors in the event of a bankruptcy could have a broader impact on companies’ access to and cost of capital. The comments by the Loan Syndications and Trading Association were aimed at the American Bankruptcy Institute, which is currently studying the 1978 bankruptcy code for areas in need of updating. Among those under consideration is the role of secured debt in bankruptcies.” Read on>>

Reformers Eye Distressed-Debt Investors: Do hedge funds and other buyers of the securities of failed companies adversely affect the bankruptcy process? (Bernstein Shur):

“The American Bankruptcy Institute’s commission studying reforms of the U.S. bankruptcy code has distressed-debt investors near the top of its agenda. But so far the institute’s not getting much backing from the bankruptcy lawyers and academics appearing at its meetings on the issue.” Read on>>

In re: Federal-Mogul Global Inc.: Third Circuit Holds Bankruptcy Code Preempts Anti-Assignment Provisions, Allowing Transfer of Policy Rights to Asbestos Trust (McCarter & English, LLP):

“Federal-Mogul’s proposed plan for reorganization sought to channel present and future asbestos-related claims to a trust pursuant to (g). Additionally, the plan assigned assets to the trust, including Federal-Mogul’s rights to recover under liability insurance. The plan included provisions granting insurers the right to assert any defenses to coverage already available under the policies, except for the defense that the transfer of the policies to the trust violated any anti-assignment provisions – i.e., standard clauses that bar the insured from transferring the policies without the insurers’ consent.” Read on>>

Michigan State University v. Asbestos Settlement Trust (In re The Celotex Corp.) – ABI Bankruptcy Brief, November 9, 2012 (Bilzin Sumberg Baena Price & Axelrod LLP):

“Asbestos Settlement Trust (the ‘Trust’) was created in bankruptcy case in 1996 to pay asbestos mass tort claims for bodily injury and property damage against in Celotex Corp. and Carey Canada, Inc. Appellants are educational institutions that filed property damage claims against the Trust, which claims were denied as not meeting prerequisites for payment.” Read on>>

Collateral Value of FCC Broadcasting Licenses Less Uncertain After 10th Circuit Court of Appeals Ruling (Poyner Spruill LLP):

“In its recent decision in Valley Bank and Trust Company v. Spectrum Scan, LLC (In re Tracy Broadcasting Corp.), the U.S. Court of Appeals for the 10th Circuit overturned lower court decisions that were casting serious doubt on a lender’s ability to realize value from its security interest in the proceeds of FCC broadcast licenses.” Read on>>

Fifth Circuit Finds that an Electricity Requirements Contract Is a “Forward Contract” Exempt from Bankruptcy Code’s Avoidance Powers (Cadwalader):

“[T]he United States Court of Appeals for the Fifth Circuit held that a requirements contract for electricity is a forward contract for purposes of section 546(e) of the Bankruptcy Code and, therefore, settlement payments made under the contract are exempt from avoidance as preferences… The Fifth Circuit’s ruling is a boon to electricity providers that receive payments from counterparties that are insolvent at the time of payment and file for bankruptcy protection shortly thereafter.” Read on>>

Fool Me Once…: When Lenders are the Losers in Bankruptcy Court (Dechert LLP):

“The U.S. Bankruptcy Court in the Southern District of Indiana has been green lighting a debtor’s use of a bit of boldface legerdemain, over and over again, to keep control and ownership of his properties post-default and post-bankruptcy. If this were to become a common outcome for single asset bankruptcy cases, lenders’ reasonable expectations about bankruptcy would be fundamentally frustrated.” Read on>>

Bankruptcy Court Approves Innovative Plan Preserving Solyndra’s Valuable Tax Attributes Over DOJ Objections (Skadden, Arps, Slate, Meagher & Flom LLP):

“A bankruptcy court has approved the reorganization plan of solar cell manufacturer Solyndra despite government objections that the plan’s principal purpose was ‘tax avoidance’ through the preservation of net operating losses. There are very few decided cases addressing this issue, and Solyndra’s is worth following as any appeal proceeds.” Read on>>

Hostess Does Not Liquidate, Set to Mediate With Union (Cadwalader):

“Despite widespread mainstream media reports of Hostess’ impending liquidation, the court has not yet approved liquidation. To the contrary, on November 19, 2012, after a brief hearing on Hostess’s emergency motions to begin the wind down of its operations, Hostess and its two main unions agreed to attend a confidential mediation session. At the mediation, Bankruptcy Judge Robert Drain intends to determine if the parties can avoid liquidation.” Read on>>

Hostess Court Authorizes Rejection of Bakers’ Union Collective Bargaining Agreements (Cadwalader):

“Judge Drain’s decision authorizing Hostess to reject its CBAs with the Bakers’ Union is the second recent decision in the bankruptcy court of Southern District of New York authorizing a CBA rejection after first denying a debtor’s motion to reject. As was the case in AMR, Judge Drain’s initial denial was based on narrow grounds. As a result, the parties restarted negotiations that led to consensual modifications to Hostess’s CBAs with the Teamsters.” Read on>>

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