RECENT CHAPTER 11 BANKRUPTCY OPINIONS (2014)

Issue: Whether the debtor's adequate protection payments to an under-secured creditor with a post-petition security interest in proceeds or rents derived from its collateral should be applied to reduce such creditor's unsecured claim for ballot tabulation in voting on the debtor's plan.

Holding: The court held that the debtor's adequate protection payments to the under-secured creditor increased the overall amount of the creditor's collateral, thereby reducing the amount of its unsecured deficiency claim. The under-secured creditor sought a determination of the tabulation of its ballot cast on the debtor's plan, and the debtor argued that its adequate protection payments should have been applied to reduce the creditor's unsecured claim. In addition to the holding above, the court determined, as an initial matter, that it still had jurisdiction to determine the application of the debtor's adequate protection payments despite an appeal from its prior order sustaining the debtor's objection to including retroactive default interest in the creditor's proof of claim because the issue of the application of the debtor's adequate protection payments was a distinct issue.

L. AVOIDANCE/PREFERENCE ACTIONS

i. Crumpton v. Stephens (In re Northlake Foods, Inc.), 715 F.3d 1251 (11th Cir. 2013)

Issue: Whether a subchapter S corporation received reasonably equivalent value for dividends paid pursuant to a shareholder agreement in the amount of the shareholder's tax liability for the preceding year.

Holding: The Eleventh Circuit held that the benefit to the debtor subchapter S corporation for its tax pass-through election constituted reasonably equivalent value for the transfer of a dividend in the amount of a shareholder's tax liability for the preceding year, pursuant to a shareholder agreement. The court found that the shareholder agreement benefited the debtor "because it secured shareholder consent for [the debtor] to shift to S-corporation status whenever it determined it was advantageous to do so." Additionally, after the debtor made the S- corporation election, the agreement provided the debtor with the benefit of not paying its tax liability for essentially a year because the agreement required it to reimburse the shareholders.

ii. Official Committee of Unsecured Creditors of the Estate of Fitness Holdings International, Inc. v. Hancock Park Capital II, L.P. (In re Fitness Holdings International, Inc.), 714 F.3d 1141 (9th Cir. 2013)

Issue: Whether a debtor's pre-bankruptcy transfer of funds to its sole shareholder, in repayment of a purported loan, may be a constructively fraudulent transfer under 11 U.S.C. § 548(a)(1)(B).

©2014 William L. Norton III