2008 Chapter 11 Open Forum: Year In Review

guarantor's potential payment (acting as a surety, rather than a co-obligor) did not affect the allowance of the full amount of the creditor's claim by the bankruptcy court, though it would prevent the collection of the claim to the extent of the non-debtor's payment. See Ivanhoe Bldg. & Loan Ass'n of Newark v. Orr, 295 U.S. 243, 55 S.Ct. 685, 79 L.Ed. 1419 (1935). The court further concluded that the creditor's application of payments from the non-debtor toward accrued interest would amount to allowing a claim for post-petition interest against the debtor.

* Bank of New York v. Foamex Int'l Inc. (In re Foamex Int'l Inc.), 382 B.R. 867 (D. Del. Feb. 2008) (Farnan, J.)

Under New York law, compound interest may accrue past the maturity date in some cases.

This district court, sitting in Delaware, construed several promissory notes under New York law and concluded that the notes expressly provided for the payment of post-maturity compound interest. Noting that compound interest is disfavored under New York law, the district court also recognized a long line of New York cases concluding that contracts for compound interest were enforceable when they expressly provided for interest to continue to accrue "until the principal is paid." In this case, the district court found the notes at issue to contain the requisite "until paid" language sufficient to require the reorganized debtors to pay compound interest (accrued after the maturity dates) on notes which were left unimpaired by the confirmed plans.

• In re Pan Am. Gen. Hospital, LLC, ---B.R. ---, 2008 WL 1808526 (Bankr. W.D. Tex. Apr. 2008) (Clark, J.)
• Under-secured creditor in the debtor's first chapter 11 case became over-secured postconfirmation. As a result of the plan treatment from the debtor's first bankruptcy case, the primary secured creditor held a secured claim of $1.2 million, secured by the debtor's principal assets. Before the debtor satisfied its plan obligations in full, the debtor commenced a second bankruptcy case. During the course of the second case, the debtor's principal assets were sold through an in-court auction pursuant to section 363(f), for $2.4 million (twice the value attributed to the same collateral through the confirmed plan in the debtor's first case). Following the sale, the secured creditor requested distributions from the sale proceeds to pay, in addition to the outstanding principal and pre-petition accruals, post-petition fees and interest pursuant to section 506(b). In granting the creditor's request, the court found that the debtor's plan from the first case ratified and otherwise left unaltered the terms of a pre-existing security agreement. That pre-existing agreement, said the court, "provided for" reasonable attorneys' fees so that fees incurred during the course of the second case were authorized under section 506(b).
• In re Northwest Airlines Corp., 383 B.R. 575 (Bankr. S.D.N.Y. Mar. 2008) (Gropper, J.)

Basic Article 9 concepts, complex facts: lenders' perfected security interests did not give them superior rights to collateral owned by another entity. In this case, an indenture trustee (on behalf of lenders) commenced Article 9 foreclosure proceedings on airplanes which were owned by an "owner trust" and leased to the debtor by leveraged leases. As collateral for the leveraged leases, the lenders took security interests in the airplanes, the leases, and the proceeds therefrom. Once in bankruptcy, the debtor rejected the leases and further abandoned the