Bankruptcy; new-value exception

Article Abstract:

The US Supreme Court ruled in Bank of America National Trust & Savings Ass'n v. 203 North LaSalle Street Partnership that a new-value plan of bankruptcy reorganization granting prebankruptcy equity holders the exclusive right to receive ownership interests in the reorganized debtor in return for a contribution of new capital without any valuation of the adequacy of the proposed contribution was not approved. Inconsistency among the circuits on the viability of the new-value exception will continue without a legislative fix.

United States, Corporate reorganizations

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Lessors win bankruptcy claim status; the 2d Circuit recently awarded landlords a priority for claims against Chapter 11 debtors, allowing losses to be paid in full

Article Abstract:

The US Court of Appeals for the 2d Circuit rendered a judgment favorable to landlords of commercial real property in its 1996 reversal of a lower court's decision in Nostas Assocs v Costich (In re Klein Sleep Prods). The case concerned the priority accorded landlords' claims in bankruptcy when the debtor rejected a lease it had previously assumed while in bankruptcy. The Court ruled that such claims are administrative, not unsecured, as the lessor has already derived the benefit of assuming a longer lease.

Landlord and tenant, Landlord-tenant relations, Bankruptcy

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The 2d Circuuit sides with the 4th Circuit by limiting the right of old-equity participants to preserve their interests under the 'new-value exception.'

Article Abstract:

The United States Court of Appeals for the 2d Circuit ruled in In re Coltex Loop Central Three Partners against a plan of bankruptcy reorganization allowing old-equity participants to preserve their positions in return for a contribution of new capital to fund a plan. The court held that old equity may preserve its interest only if it has evidence that no other party tried to file a competing plan or that the value of the interest to be retained was adequately priced.

Bankruptcy reorganizations, Bankruptcy reorganization

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