Lawyer Spotlights: Genna Ghauland Nicholas J. Morin
The Year in Bankruptcy: 2022
A brief chronicle of the year's notable developments in corporate bankruptcy and restructuring, including business bankruptcy filings, significant court rulings and bankruptcy legislation. [read more ...]
First Impressions: The Eleventh Circuit Examines 20-Day Administrative Expense Claims and the Subsequent New Value Preference Defense
Because the claims of vendors who provide goods to a debtor during the 20 days before it files for bankruptcy are conferred with administrative expense priority'a designation otherwise almost exclusively limited to claims against a debtor that arise after the bankruptcy petition date'courts sometimes disagree over whether a preference defendant can use the same value to assert such a "20-day claim" and to offset its preference liability under the "subsequent new value" defense. The U.S. Court of Appeals for the Eleventh Circuit recently addressed this question as a matter of first impression in Auriga Polymers Inc. v. PMCM2, LLC, 40 F.4th 1273 (11th Cir. 2022). It held that a preference defendant may use the same value to assert a 20-day claim that it can use to offset its preference liability under the subsequent new value defense. In so ruling, the court determined that only prepetition transfers affect a creditor's subsequent new value defense. [read more ...]
Sears Holding: A Case Study in Valuing Collateral in Chapter 11
In ESL Investments Inc. v. Sears Holding Corp. (In re Sears Holding Corp.), 51 F.4th 53 (2d Cir. 2022), the U.S. Court of Appeals for the Second Circuit held that, given the uncertainty surrounding the retail debtors' fate at the time they filed for bankruptcy, the bankruptcy court did not err in valuing inventory collateral at its "net orderly liquidation value," rather than book value, going-out-business sale value or forced liquidation value. The Second Circuit also found no fault with the bankruptcy court's decision to value non-borrowing base inventory at zero and to ascribe full face value to undrawn letters of credit where, among other things, the junior lenders failed to meet their evidentiary burden of suggesting a reasonable alternative. [read more ...]
Appeal of Unstayed Order Approving Bankruptcy Sale of Real Property Free and Clear of Lease and Related Settlement Agreement Dismissed as Moot
In In re Royal Street Bistro LLC, 2022 WL 6308294, 21-2285 (E.D. La. Sept. 23, 2022), the U.S. District Court for the Eastern District of Louisiana affirmed bankruptcy court orders approving an auction sale of properties free and clear of a tenant's leasehold interest as well as a related settlement agreement because both appeals were mooted by section 363(m) of the Bankruptcy Code'the sale, by the express terms of section 363(m), and the settlement, because it was an integral part of the sale. The ruling reinforces the principle that property can be sold free and clear of a tenant's leasehold interest, despite protections of such interests elsewhere in the Bankruptcy Code. It is also emblematic of the broad...
