Kuney’s Corner: The Many Fates of Intercreditor Agreements

Potential Outcomes of Intercreditor Deeds   Secured creditors often seek agreement among themselves in order to limit intercreditor conflict and expedite fulfillment of their respective claims against a borrower in a Chapter 11 case. One might call it a “strength through peace” approach.   However, in Chapter 11 cases, some courts have ignored intercreditor agreements in cramdown situations, refused to enforce certain terms as contrary to public policy, and have construed a given intercreditor agreement term as not covering the controversy at issue. We note that the likely fate of an […]

Kuney’s Corner: The Secured Creditor’s Counter Strike – Section 1111(b) Election

Section 1111(b) Election: A Countermeasure for Undersecured, Secured Creditors   Mathew 5:29 – And if thy right eye offend thee, pluck it out, and cast it from thee: for it is profitable for thee that one of thy members should perish, and not that thy whole body should be cast into hell. In a previous article about cram downs, in which a debtor can take steps to confirm a Chapter 11 plan despite rejection from creditors, I referred briefly to an undersecured, secured creditor’s countermeasure: the section 1111(b)(2) election. By […]

Kuney’s Corner – Giving Secured Creditor Substitute Collateral in a Chapter 11 Cramdown

Pacifying a Hostile Lender with a Motion to Substitute Collateral  Can a Chapter 11 debtor confirm a plan that gives a hostile secured creditor a lien on an orange as a substitute, in essence, for the secured creditor’s lien on an apple that the debtor wants to keep and use?1 Yes, a motion to substitute collateral is valid if the value of the new lien meets the “indubitable equivalent” test with the value of the original lien. Substitute Collateral in Apples and Oranges  Assume that the land-rich but cash-poor Chapter […]

Kuney’s Corner – Cram Down: When the Creditor Says ‘No’

The Legal Requirements to Cram Down a Plan on Creditors   By filing a chapter 11 petition, the debtor seizes the initiative in proposing a reorganization plan—which is to provide how soon, in what amount and in what manner creditors’ claims are paid.[i] But a debtor does not necessarily get its way. A class of creditors who are not getting paid in full may reject the plan, which will prevent confirmation on a consensual basis. Ah, but the debtor may, by fulfilling additional requirements, “cram down” the plan on those […]

A written tour of business bankruptcy and its alternatives We started this series (click here to start reading from the beginning) with a broad overview of business bankruptcy but our last several installments have focused on one small, albeit important, aspect- the automatic stay.  We’ve heard from a number of readers that they would like to read more about the proverbial forest, rather than just the automatic stay tree.  And, so, with this installment we pan the camera back to explain a concept that is at play throughout a bankruptcy […]

A written tour of business bankruptcy and its alternatives Editors’ Note:  If you are a regular reader of this column, you will know that this is the third installment in a row about the automatic stay (it is a big topic and we didn’t want to lay too much on you at once).  If you’re growing bored of the topic, don’t despair, as our next installment will pan the camera back a bit and give you a flavor for how litigation in bankruptcy court works more generally. We’ll spend a […]

A written tour of business bankruptcy and its alternatives Our most recent installment in this series gives an overview of the automatic stay. In this installment we dive a little deeper, and we start with this question:  how do you know when a contemplated action would violate the stay and, thus, require stay relief before the action is taken? Consider these examples: a plaintiff believes that its lawsuit relates wholly to post-petition conduct, but the debtor alleges that it is based on pre-petition events; a creditor believes that it is exercising […]

A written tour of business bankruptcy and its alternatives We discussed the automatic stay from the perspective of a secured creditor in Installment #9 of this series.This time we pan the camera back and look at the automatic stay from a broader and more general perspective. It is sometimes said that the two primary objectives of chapter 11 are to maximize the going-concern value of the bankruptcy estate and to assure equality of distribution among similarly situated creditors. The automatic stay furthers both of these goals. It preserves going-concern value […]

A written tour of business bankruptcy and its alternatives Our prior installment discussed some of the basic things a secured creditor needs to know about Chapter 11. The automatic stay was one of them.  But, since we like to keep these things short (on the presumption that others also have short attention spans) we didn’t say all we want to say on the topic (in fact, this installment won’t satiate us either and we will continue to explain other aspects of the automatic stay in future installments). For now, we […]

A written tour of business bankruptcy and its alternatives Our last installment focused on what we called the “mundane” middle of a chapter 11 case. You can read it here. This time we discuss something a bit more exciting: confirmation. Summary Chronology Here is the basic chronology leading up to confirming a plan, for those of you with a short attention span or a need for immediate gratification: Debtor files the bankruptcy petition Debtor negotiates a plan with creditors (or their agents) Debtor drafts a plan and its disclosure statement Debtor […]