New-value exception: still viable? Courts divided

Article Abstract:

Courts are of two minds on the validity of the new-value exception under the Bankruptcy Code of 1978. The code requires debtors to follow the absolute priority rule of debt repayment only if an entire class of shareholders rejects a reorganization plan. Minority creditors no longer have the power to delay confirmation of a plan. The new-value exception to the absolute priority rule had been used to cover reorganization plans proposing less than complete payment to creditors and letting pre-bankruptcy owners keep equity in the reorganized entity.

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Landlords may be left out in the cold

Article Abstract:

Landlord claims against a bankrupt's estate assume a low priority when compared to those of other creditors. The Bankruptcy Act of 1978 gave landlords a claim against a bankrupt's estate and stipulated that this claim be calculated according to the lease or state law and capped in accordance with 11 USC 502(b)(6). Several bankruptcy courts have given guidelines for calculating the rent reserved under a lease. A tenant may decrease the landlord's maximum allowable claim by subtracting the security deposit.

Landlords

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Bankruptcy flaws now minimized; the troubling real estate implications of the code, raised, for example, by the Deprizio rule, have been modified by new legislation

Article Abstract:

The Bankruptcy Reform Act of 1994 clarifies and amends many sections of the Bankruptcy Code. The act will affect commercial real estate, including a bankrupt lessor's rejection of leases, single asset real estate, the priority of tax liens over mortgages, the perfection of security interests and the Deprizio rule. The Deprizio rule gives preferential treatment to debtors repaying insider lenders. The act should give better protection to those bankruptcy law is supposed to protect.

Finance, Real estate investment, Real estate investments

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