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Vol 13, Num 4 l November 2016

Technology and Intellectual Property

► In This Issue:

In re Chicora: Obtaining Injunctive Relief for Non-Debtors is Difficult, But Not Impossible

ABI

Elan A. Gershoni
DLA Piper, LLP
Miami

ABI

Eric D. Goldberg
DLA Piper, LLP
Los Angeles

Lenders frequently require that the insiders of single-asset real estate borrowers personally guarantee their companies’ debt to the lender. If the borrower defaults on its obligations and files for bankruptcy, the automatic stay prohibits the lender from pursuing or continuing any collection efforts against the borrower in bankruptcy. However, the automatic stay does not prohibit the lender from exercising remedies against the insider with respect to the insider’s guaranty liability. In many instances, the bankrupt borrower’s only pathway to successfully exit bankruptcy is by obtaining an equity contribution or new capital loan from the guarantor-insider. In turn, the guarantor-insider may be unwilling or unable to make such an investment absent the certainty of a court order extending the scope of the automatic stay to prevent the lender from exercising its remedies against the guarantor.

Recently, in Chicora Life Center LC v. UCF 1 Trust 1, the U.S. Bankruptcy Court for the District of South Carolina examined the contours of when it is appropriate to enjoin a lender from bringing a collection action against a single-asset real estate debtor’s insider who guaranteed the debtor’s defaulted obligations to the lender. Although the Chicora court ultimately determined that it was appropriate to extend the stay to the debtor’s principal, the case is a stark reminder that these extensions are granted only in unusual circumstances.
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I Surrender! The Meaning of Surrender under § 521

ABI

Christopher Giaimo
BakerHostetler LLP
Washington, D.C.

ABI

Dena Kessler
BakerHostetler LLP
Washington, D.C.

Considering that bankruptcy cases typically involve divvying up a less-than-whole pie, it should not come as a surprise when a court disfavors debtors trying to have their cake and eat it, too.

The Eleventh Circuit Court of Appeals recently issued a decision addressing chapter 7 debtors whose statement of intention indicated that they intended to abandon their residence, but who continued opposing the secured creditor’s foreclosure action. The court considered the question to whom the debtors must surrender their residence, and whether such surrender prevents the debtors from opposing a creditor’s foreclosure action.

In In re Failla, the chapter 7 debtors filed a statement of intention declaring that they intended to abandon their residence. They abandoned the house to the chapter 7 trustee, who abandoned it back to the debtors because the house was underwater. The debtors continued challenging the creditor’s foreclosure action, however, all the while living in the house. The creditor filed a motion to compel abandonment, arguing that the debtors’ opposition to the foreclosure contradicted their statement of intention to surrender their residence, thus they were in violation of Bankruptcy Code § 521. After the bankruptcy court and the district court ruled in favor of the creditor, the debtors appealed to the Eleventh Circuit, which considered the interplay of the various subparts of § 521.
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Royalty Interests: Real Property or Ripe for Rejection?

ABI

Deborah M. Gutfeld
Perkins Coie LLP
Denver

 

In a recent opinion delivered by Judge Huennekens in the case of In re Alpha Natural Resources Inc., et al., the bankruptcy court permitted the debtor, Alpha Wyoming Land Co., to reject a settlement agreement that required the payment of a royalty, the amount of which was based on a percentage of the coal mined and subsequently sold by the debtor from various areas in the state of Wyoming. The counterparties to the agreement (the “objectors”) argued, unsuccessfully, that the payments under the agreement were not merely contractual obligations owed by the debtor, but constituted an interest in real property that was conveyed as of the execution of the agreement, and therefore was not subject to rejection under § 365 of the Bankruptcy Code. In order to reach its conclusions with respect to the nature of the obligation, the bankruptcy court first analyzed the nature of the obligation under applicable state (Wyoming) law.
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Bankruptcy Court Holds Sanitary District’s Post-Sale Connection Charge Barred by § 363(f) Free-and-Clear Sale Order

ABI

Keith L. Kleinman
Cozen O’Connor
Wilmington, Del.

One of the benefits of purchasing a debtor’s assets through the bankruptcy process is the opportunity to obtain an order from a bankruptcy court approving the sale free and clear of other parties’ interests in the purchased property, pursuant to § 363(f) of the Bankruptcy Code. Through such “free and clear” sale orders, purchasers can preclude parties that had an interest in a property prior to the sale from later asserting such interests against the purchaser, including, but not limited to, claims against the purchaser for unpaid fees associated with the pre-sale use of the purchased property.
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24th Annual Southwest Bankruptcy Conference

 

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