Business Restructuring Review | July–August 2020

In This Issue:

Eighth Circuit Rules that Bankruptcy Code's Cap on Lease Damage Claims Applies to Fraudulent Transfer Judgment

In Lariat Cos. v. Wigley (In re Wigley), 951 F.3d 967 (8th Cir. 2020), the U.S. Court of Appeals for the Eighth Circuit reversed a bankruptcy appellate panel decision and held that an individual debtor's joint liability with the guarantor of a real property lease for a fraudulent transfer judgment: (i) was not discharged as a result of the lease guarantor's prior bankruptcy discharge; but (ii) was nonetheless capped under section 502(b)(6) of the Bankruptcy Code. According to the Eighth Circuit, the fraudulent transfer judgment was "one step removed from the breach of the lease, but [the debtor's] liability results from the breach of the lease, so the cap applies." [read more …]

Oversecured Creditor's Right to Contractual Default-Rate Interest Allowed Under State Law

In In re Family Pharmacy, Inc., 614 B.R. 58 (B.A.P. 8th Cir. 2020), an Eighth Circuit bankruptcy appellate panel reversed a bankruptcy court's order disallowing a secured creditor's claim for interest at the default rate under the parties' contract using a penalty-type analysis generally applied to liquidated damages provisions. According to the panel, such an analysis cannot be applied to default interest provisions. The panel also held that the bankruptcy court erred when it held that the default interest rate was unenforceable based on "equitable considerations." [read more …]

Force Majeure Clause Triggered by Pandemic Shutdown Order Partially Relieves Chapter 11 Debtor from Timely Paying Postpetition Rent

In In re Hitz Restaurant Group, 2020 WL 2924523 (Bankr. N.D. Ill. June 3, 2020), the U.S. Bankruptcy Court for the Northern District of Illinois held that, because a government shutdown decree forced a restaurant to suspend on-premises dining, a force majeure clause in the restaurant's lease partially relieved the debtor from paying postpetition rent. [read more …]

Expanding the Scope of the Bankruptcy Safe Harbor for Securities Transactions

In Holliday v. K Road Power Management, LLC (In re Boston Generating LLC), 2020 WL 3286207 (Bankr. S.D.N.Y. June 18, 2020), the U.S. Bankruptcy Court for the Southern District of New York held that: (i) section 546(e) of the Bankruptcy Code preempts intentional fraudulent transfer claims under state law because the intentional fraud exception expressly included in section 546(e) applies only to intentional fraudulent transfer claims under federal law; and (ii) payments made to the members of limited liability company debtors as part of a pre-bankruptcy recapitalization transaction were protected from avoidance under section 546(e) because the debtors were "financial institutions," as customers of banks that acted as their depositories and agents in connection with the transaction. [read more …]

Another Bankruptcy Court Joins the Majority Camp on Post-Plan Confirmation Setoff

In In re Rogers Morris, 2020 WL 1321894 (Bankr. N.D. Miss. Mar. 16, 2020), the U.S. Bankruptcy Court for the Northern District of Mississippi contributed to an existing split among the courts by joining the majority view in holding that a creditor may exercise setoff rights after the confirmation of a plan in a bankruptcy case. [read more …]

From the Top in Brief: U.S. Supreme Court Bankruptcy Roundup

In Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC, No. 18-1334, 590 U.S. ___ (June 1, 2020), the Supreme Court rejected a constitutional challenge to Congress's scheme for addressing Puerto Rico's fiscal crisis. The Court also recently denied petitions to review certain other high-profile bankruptcy-related rulings. [read more …]

Assets May Be Sold in Bankruptcy Free and Clear of Successor Liability

In In re Catalina Sea Ranch, LLC, 2020 WL 1900308 (Bankr. C.D. Cal. Apr. 13, 2020), the court joined the majority of courts in holding that assets can be sold to an insider of a debtor free and clear of successor liability claims within the plain meaning of section 363(f) of the Bankruptcy Code. [read more …]

Bolstering the Majority Rule: Bankruptcy Court Holds that Adjudication of Avoidance Liability Is Prerequisite to Disallowance of Transferee's Claim Under Section 502(d)

In In re Southern Produce Distributors, Inc., 2020 WL 1228719 (Bankr. E.D.N.C. Mar. 11, 2020), the bankruptcy court held that the claim of a recipient of an avoidable transfer cannot be disallowed under section 502(d) of the Bankruptcy Code, which disallows such claims unless the transferee returns the transferred assets to the estate, until the transferee's avoidance liability has been finally adjudicated. [read more …]

Secured Creditor's "Net Economic Damages" Estimate of Disputed Claims "Plainly Insufficient" to Establish Collateral Value

In In re Montreal, Maine & Atlantic Railway, Ltd., 956 F.3d 1 (1st Cir. 2020), the U.S. Court of Appeals for First Circuit affirmed a ruling that a secured creditor failed to satisfy its burden of establishing that collateral in the form of indemnification claims settled by the estate had any value entitled to adequate protection. According to the court, a showing of possible damages is not enough with respect to a disputed claim. Instead, the creditor must establish the likely validity of the claim and the likelihood of recovery. [read more …]


Corinne Ball (New York) received the 2020 Lifetime Achievement Award from the New York Law Journal ("NYLJ") for making "an impact on the legal community and the practice of law over an entire career." The NYLJ announced its 2020 awards on June 30, will feature the recipients in its upcoming Professional Excellence Magazine, and will honor them at the New York Legal Awards on October 27, 2020. Ms. Ball has nearly 40 years of experience in business finance and restructuring, with a focus on complex corporate reorganizations and distressed acquisitions. She co-leads the New York Office of Jones Day's Business Restructuring & Reorganization Practice and leads the Firm's European Distress Investing and Alternative Capital Initiatives. She also leads the Firm's distressed M&A efforts and is the featured "Distress M&A" columnist for the NYLJ.

Fabienne Beuzit (Paris) and Isabelle Maury (Paris) were recognized in the 2021 edition of The Best Lawyers in France™ in the field of Insolvency and Reorganization Law.

Heather Lennox (Cleveland and New York) and Corinne Ball (New York) were named "Leading Lawyers" in the field of "Finance—Restructuring (including bankruptcy): corporate" in The Legal 500 United States 2020.

Dr. Olaf Benning (Frankfurt) was recognized in the 2021 edition of The Best Lawyers in Germany™ in the field of Restructuring and Insolvency Law.

Bruce Bennett (Los Angeles and New York) was named a "Leading Lawyer" in the fields of "Finance—Restructuring (including bankruptcy): corporate" and "Finance—Restructuring (including bankruptcy): municipal" in The Legal 500 United States 2020.

An article written by Brett P. Barragate (New York) and Kay V. Morley (London) titled "Cross-Border Restructurings Case Study: syncreon" was the "feature story" in the May 2020 issue of The Secured Lender.

Joshua K. Brody (New York) was named a "Next Generation Partner" in the field of "Finance: Restructuring (including bankruptcy): corporate" in The Legal 500 United States 2020.

On April 28, 2020, Thomas M. Wearsch (Cleveland) gave a presentation titled "Anatomy of a Distressed Supplier Situation" to the Legal Issues Council of the Association of Original Equipment Suppliers at its annual meeting. On June 24, 2020, he gave a presentation regarding "Navigating the Minefield of Emerging Corporate Governance Issues in Complex Restructurings" at the Association of Insolvency and Restructuring Advisors' annual conference.

An article written by Carl E. Black (Cleveland), Mark J. Andreini (Cleveland), and Jonathan Noble Edel (Cleveland) titled "Creditors at the Gate: How Good Are Your Indemnities and D&O Insurance?" was published in the June 2020 issue of Pratt's Journal of Bankruptcy Law.

An article written by Charles M. Oellermann (Columbus) and Mark G. Douglas (New York) titled "Use of Cash Collateral to Pay Prepetition Debt Not Prohibited by Jevic" was published in the June 26, 2020, issue of the International Law Office's Insolvency and Restructuring Newsletter.

An article written by Dan T. Moss (Washington) and Heather Lennox (Cleveland and New York) titled "Temporary Suspension of Bankruptcy Cases During Pandemic" appeared in the May 1, 2020, edition of Bloomberg Law.

An article written by Corinne Ball (New York) titled "Release and Waiver by an LLC Debtor of Its Affiliated Lenders Bars Subsequent Suit" was published in the June 24, 2020, edition of the NYLJ.

An article written by Dan T. Moss (Washington) and Mark G. Douglas (New York) titled "Post-Taggart, Ninth Circuit BAP Holds that No Fair Ground of Doubt Standard Applies to Automatic Stay Violations" was published on May 12, 2020, in Lexis Practice Advisor.

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