In a recent November 17, 2016 opinion, Delaware Trust Co. v. Energy Future Intermediate Holding Company LLC, Case No. 16-1351, the Third Circuit Court of Appeals reversed two lower court opinions by holding that make-whole premiums can be enforceable even if the debt was automatically accelerated by a voluntary bankruptcy filing. The Third Circuit’s opinion is significant because it now puts borrowers on notice that under New York law, a debtor filing for bankruptcy may not necessarily be allowed to avoid redemption provisions and any related make-whole premiums similar to those involved in this case. Instead, in specifically examining the intent and language of those provisions, courts may, as the Third Circuit did here, read such automatic acceleration provisions and optional redemption provisions in harmony.
Where do marketplace lenders and secondary loan market participants find themselves on the issue of preemption of state usury laws after the June 27 denial of the petition for a writ of certiorari in Madden v. Midland by the U.S. Supreme Court?
In Madden v. Midland, the US Court of Appeals for the Second Circuit refused to follow the “valid-when-made” rule when considering the scope of federal preemption of state usury laws under the National Bank Act. The court held that the NBA did not bar the application of state usury laws to a national bank’s assignee. In considering the applicability of the National Bank Act to a loan in the hands of a non-bank assignee, the Second Circuit considered a number of cases upholding preemption of state usury laws under the National Bank Act but invoked a seemingly new rule for applying section 85 of the National Bank Act (permitting a national bank to charge interest at the rate permitted by its home state). The Second Circuit concluded that preemption is only applicable where the application of state law to the action in question would significantly interfere with a national bank’s ability to exercise its power under the National Bank Act. The court reasoned further that where a national bank retained a “substantial interest” in the loan, the application of the state usury law would conflict with the bank’s power authorized by the National Bank Act.
In a recent decision, the U.S. Bankruptcy Court for the District of Delaware refused to enforce a provision in the debtor’s LLC operating agreement requiring a unanimous vote of the debtor’s members to authorize the debtor to file for bankruptcy. In re Intervention Energy Holdings, LLC, et al., 2016 Bankr. LEXIS 2241 (Bankr. D. Del. June 3, 2016). The provision at issue required the consent of all the debtor’s LLC members to file for bankruptcy, including the consent of a member that was a secured creditor holding one unit of ownership in the debtor’s LLC which it bargained for and received pursuant to a forbearance agreement. In refusing to dismiss the debtor’s bankruptcy case, the Court concluded that such an arrangement giving the secured lender a so-called “golden share” was “tantamount to an absolute waiver” of the debtor’s right to seek bankruptcy protection and therefore void as a matter of federal public policy.
On May 16, 2016, the United States Supreme Court in Husky International Electronics v. Ritz held that the phrase “actual fraud” under section 523(a)(2)(A) of the Bankruptcy Code may include fraudulent transfer schemes that were effectuated without a false representation. Section 523(a)(2)(A) provides that an individual debtor will not be discharged from certain debts to the extent that those debts were obtained by false pretenses, false representations or actual fraud. The Court’s decision in Husky resolved a conflict in the interpretation of actual fraud under section 523(a)(2)(A) between the Fifth and Seventh Circuits.
In a news conference today President Obama addressed rules and proposed regulations announced Thursday intended to help the U.S. fight tax evasion and other crimes connected to anonymous offshore companies and accounts. The announcements come after a month of intense review by the administration following the first release of the so-called Panama Papers, millions of documents stolen or leaked from Panamanian law firm Mossack, Fonseca. The papers have revealed a who’s who of international politicians, business leaders, sports figures and celebrities involved with financial transactions accomplished through anonymous shell corporations.
The doctrine of equitable mootness provides that Chapter 11 reorganization plans will be deemed moot, and therefore not subject to appellate review, if a plan has been substantially consummated and granting appellate relief would impair the rights of innocent third parties relying on the confirmation order. Since the development of the court-created mootness doctrine nearly a quarter century ago, courts have grappled with applying it in such a way as to strike an adequate balance between the need for finality, and the need to exercise the court’s jurisdiction and preserve the right to appellate review. The standard interpretation in bankruptcy was that once the debtor took definitive steps to put the Chapter 11 plan in place (i.e., “substantial consummation”), and the objecting creditor neglected to gain a stay of the plan confirmation order pending appeal, then any appeal was presumed to be “equitably moot” and therefore subject to dismissal by the appellate court.
In a 6-3 ruling, the U.S. Supreme Court held that bankruptcy courts have the authority to adjudicate Stern claims so long as the litigant parties provide “knowing and voluntary consent.” This decision in Wellness International Network, et. al. v. Richard Sharif provides much needed guidance as to the breadth and applicability of the Supreme Court’s 2011 decision in Stern v. Marshall. Continue Reading
Despite the tremendous growth and development of oil and gas resources in recent years, the industry is expected to be a boon for bankruptcy lawyers. This article explores how the current low price environment hurts developers and their lenders, whose past investment premises included a sustained high price environment and provides some insight into what the issues will be in bankruptcy.
Click here to read the full article originally published by The Metropolitan Corporate Counsel.
On January 27, 2015, the Consumer Financial Protection Bureau (“CFPB”) issued a compliance bulletin reminding supervised financial institutions (including large depository institutions, credit unions and their affiliates, certain nonbanks, and service providers) of existing regulatory requirements regarding confidential supervisory information. In this article we (i) explain the definition of confidential supervisory information; (ii) discuss exceptions to the non-disclosure rule; and (iii) offer tips for ensuring compliance. Continue Reading
On December 23, 2014, the United States Court of Appeals for the Second Circuit issued an opinion on an issue of first impression, namely the scope of § 304(a)(2) of the Trust Indenture Act of 1939, 15 U.S.C. §§ 77aaa-77aaaa (the “TIA”), and its application to certificates issued by trusts under pooling and servicing agreements (“PSAs”). See Ret. Bd. of Policemen’s Annuity & Benefit Fund v. Bank of N.Y. Mellon, Nos. 13-1776-cv, 13-1777-cv (2d Cir. Dec. 23, 2014).