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when determining the secured creditor’s interest in property—look to state law. (non-bankruptcy law) UNLESS there is a clear statement in the bankruptcy law to the contrary.



consistent with Butner. Preserves the interest under state law, but the notion of property is broader— board seats on the exchange count as property. (even though this definition is broader than what would be considered property of the estate under state law…).

Chicago Board of Trade


o Key Q: Does form or substance prevail?

First tries to see if “simple trust” can be fit into the language of 101-9a, since it is not limiting language—“including.” BUT looks to LH to say that code should not be considered as extending the definition of “simple trust” beyond its common law definition, without specific statements to that effect.

In re Treasure Island Land Trust


In chapter 7 case--obligation to pay for environmental damage the result of a statute. Court says statutory based claim is still a claim:

Ohio v. Kovacs


Chapter 11 case— Epstein is “future claim representative”. Sets out four tests for whether “future claims” are claims, and holds this didn’t qualify as a claim.

1. State law definition of “claim”---court rejects this definition.
2. Did debtor’s conduct occur before the bankruptcy—court rejects this definition.
3. Conduct + relationship (pre filing)
4. Piper Test--Conduct + relationship (including post filing but pre “confirmation” of the injury) between debtor and creditor.

Epstien V. Official Committee


SC says that individual can file a chapter 11 even if they don’t have an “ongoing business.” No such requirement under the statute

Toibb v. Radoff


SARE (“Sole Asset Real Estate” Case)—somewhat common issue. Goal was to use this as leverage in negotiations with creditors for reduction on the debt service, to enable it to continue financially.
• Was not a “shield” but rather a “sword” and the bankruptcy court determines it was not filed in good faith—dismisses the case.
• Now a law in SARE cases that give small window for filing of a plan, or else the case is dismissed.

Victory Construction


Filed with pending consumer antitrust litigation against it. Court dismisses the filing as “litigation strategy” to coerce settlement from those suits. “inchoate risk” of insolvency is not enough to file.
o Company had filed press release saying that the company financials were fine.



Q: whether Weil should have been disqualified under section 327 for improper disclosure of conflicts?
• Concludes that Weil was not disinterested but sanctions should suffice, and the report was not tainted
• Case stands for proposition that need to take Rule 2014(a) very seriously—disclosure obligations of “connections” whether you think it is “adverse” or “material” or not up to the judge to decide.

Leslie Faye


§327(d)-exception for hiring accountants or law firm when it is your own firm. Fees were originally disallowed b/c of conflict, but district court overrules, saying the disclosure was adequate, and their was no issue—should have been paid



violated the automatic stay by compelling payment, in that they said they would not ship new goods unless they received payment for the previous ones. Court gives equitable relief, despite lack of contract with the debtor, and orders Wilson to ship despite lack of payment



• But for immediate payment, vendors would cease dealing
• Continued transactions with these vendors will leave residual benefit to unsecured creditors, such that they will be no worse off than if these payments were not made.

Here, court holds no sufficient showing made, and rejects theory of “reliance” as a reason not to avoid these preferential payments.



peaks and valleys in the value of the collateral, so need to take a long term view of whether it will be adequately protected or not.



unsecured creditor after appointment to the committee was no longer an unsecured creditor, so trustee wrote to say they are no longer on committee. They sue, but court agrees that they no longer belong on the committee.

key Q: Are they thinking like a secured (take collateral and let it die) or unsecured creditor (if possible let the company live, and everyone will be better off)

American West


Ad-Hoc committee (an informal committee so NO fiduciary duty aside from to other members of the committee)
• Must pay their own fees, subject to exceptional circumstances
o Often hedge funds—information they acquire on the committee can be used as opposed to the official committee where it would be treated as insider trading.
• Case is about disclosure obligations of the ad-hocs committees.

Northwest case


What happens to the “right of set-off”?
• Can’t do it: interfering with property of the estate.
o §362a7 says need to lift the stay even though §5__ protects the right of set-off.
• What about a temporary hold on an account?
o Justice Scalia says this is allowed—temporary freeze is not “exercising control” of the funds.

Citizens bank of Maryland v. Struck


automatic stay can extend to cover insurer IFF the policy has a limit that is reached and which is not sufficient to cover the debtor. Prevents the limited pool from being prematurely depleted.

AH Robins


--Where company executives put their own assets as collateral, the stay does not protect their individual assets.
• But sometimes key employees or guarantor are protected as an extension of the automatic stay (§105) if there role is so integral to the continued operation of the business. (“unusual circumstances)

Crestar Bank


- Distinguishes b/w penalties (not allowed to violate stay) and fees e.g. for environmental upkeep
o Exception to the exception: “to enforce a money judgement” (construed narrowly to give greatest leniency to state authority).
- Where action to collect is brought in the bankruptcy court. (Ie. while an action seeking declaratory judgement in district court would violate the stay, not true if brought within the bankruptcy court.

NLRB case


first method of adequate protection is the making of cash payments to compensate for depreciation of opposing entity’s interest. (periodic payments) §361(1)



rejects forced liquidation valuation (for purposes of determining the amount of disposition from collateral and therefore payments necessary to cover any depreciation) in favor of “commercial reasonableness” standard akin to protections in the UCC provided debtor continues to operate going-concern.
- Net recovery realizable from disposition as near as may be in the ordinary course of business.
- “collateral margin or equity” is amount by which projected net recoveries from a commercially reasonable disposition exceed the debt secured.
- §361(2)—adequate protection through replacement liens

In re. American Kitchen Foods—


- Asks 4 questions
o What is the “interest in property” being protected?
 Secured creditor gets more protection/ Senior vs. junior lienholder
 Real vs. intangible property
 whether value fluctuates or remains stable
 Proposed use or idleness of the property
o What aspects of the “interest in property” require protection?
 Only the value of the lien requires protection, not the overall debt
o For what is the “interest in property” being protected?
 Only that decline in value which but for the stay could be Prevented or mitigated.
o What is the method of protection?
- Alternate view: (court here rejects this view)---stay should be terminated when equity cushion will be absorbed through interest, commissions, and other costs of resale.
o Absence of equity cushion is not dispositive—must be weighted against necessity of the property for effective reorganization

In re. Alyucan Interstate


(SC): motion to lift stay in which the claim was Undersecured. But the security was increasing in value (so no diminution of value). Creditor claims “lack of adequate protection”—that lack of ability to foreclose should be compensated-- and bankruptcy court grants percentage/annum grant to the creditor. SC reverses because 506b only applies to oversecured assets. So no interest or compensation for the delay.
- Section 506:
o For oversecured collateral—creditor can ask to take out the interest on the security in compensation for delay.
o Does NOT apply to undersecured assets
- Only compensated for delay when there is a dimunition in value of the asset.
- Once creditor shows they are undersecured though, under the code—burden shifts to debtor to show it is necessary for effective reorganization.
o Requires: successful reorganization within reasonable amount of time!

Timbers of Inwood Forest Assc


previously supportive of DIP management, but relations sour after reneging on previous agreement.
• Applies “clear and convincing” standard
• Mismanagement prior to filing not grounds for trustee, but continuing mismanagement after filing is grounds for trustee.
• Since analyzing under (a)(2)—public interest weighs heavily in the analysis.
• 4 factors:
o Trustworthiness of the debtor
o Past and present performance and prospects for debtor’s rehabilitation
o Confidence or lack thereof of the business community and creditors in present management
o Benefits derived by appointment of a trustee, balanced against the cost of the appointment
• Also weighing heavily—no one willing to support continued use of escrowed unencumbered cash without appointment of T—alone sufficient under (a)(2).



DIP challenges appointment of trustee by creditor’s committee.
• Appointment of trustee in chap. 11 considered “extraordinary act” presumption of DIP control
• Rejects standard of showing of “clear and convincing evidence” justifying appointment of T rather only preponderance standard required allowing for greater judicial discretion.
o Failure to disclose material and relevant information to the court and to creditors is grounds for appointment of T.
o Existence of grand jury investigation and civil suits (which would drain management focus) at least relevant
o Questionable business transactions with related companies sufficient.
• Simplicity of a business weakens presumption in favor of DIP management, rather than weighing against it.

Tradex Corporation v. Morse


On MSJ Absestos company—future litigants committee and other committees reach agreement on plan with management, but opposed by the equity committee of shareholders, b/c their share could be diluted under the plan by 90% or more. Instead wants to elect new officers who would oppose the current plan (under provision of Delaware law allowing special meeting to be called). Court finds issues of triable fact as to whether there was “clear abuse.” (though the decision was affirmed on remand).
• Can only impair vote of stockholders in case of “clear abuse.” AND “irreparable injury” (for injunction)
o Attempting to get more bargaining power is not “clear abuse”
o Rather question of whether rehabilitation is “ seriously threatened rather than merely delayed” by the vote.
 Delay is allowed as “concomitant of the right to change boards”
• Dicta: This changes in the zone of insolvency—stockholders no longer real parties in interest
o BLL: insolvency does not affect corporate governance.
• On remand: Affirmed w/ new considerations
o Some of the stock bought after the chap. 11 filing
o Finding of good faith on the creditors committee and the DIP.
o Finding that the delay could imperil the possibility of reorganization.



family business in which some members of the board are moving for instillation of new board to prevent current CEO’s plan to reissue stock that would divest the rest of their equity. Court says that the current management has more experience, and has made some progress, whereas the proposed board does not have experience or a concrete plan in mind.
• Though generally don’t interfere with corporate governance, in case where ie. salaries are excessive to insiders or case like this—court can order temporary abridgement of those rights.

Lifeguard Industry


§1108- “unless the court orders otherwise, the trustee may operate the debtor’s business”
• BJR rule applies, so we don’t second guess decisions of the trustee where in good faith, upon a reasonable basis, within the scope of his authority under th code= “arbitrary and capricious” standard.
o “unless the court orders otherwise” means if the court determines that it is proper to dismiss/ change to liquidation where proper—not that the trustee’s management can be conditioned or second guessed rebuttable presumption of continued operation.
o Code sections allow judicial oversight of the DIP, but those provisions are missing from §1108, suggesting the same limitations don’t apply to an appointed trustee

Curlew Valley


Allows for dismissal of trustee for DIP in two cases:
• “improvidence”—finding based on facts not originally available that trustee should not have been appointed in the first place.
• “change in circumstances”—the circumstances which gave rise to the order appointing a trustee no longer exist.



court will not interfere with day to day operations of the DIP—possessing all the powers of a trustee—and creditor committee should not be involved in day to day decisions either.
• But in large cases with creditor involvement or where DIP financing is required, debtor may solicit advise from creditors as sign of goodwill to encourage cooperation and confirmation of an eventual plan.
• ++§363(b)(1)—limited to ordinary course of business. Otherwise notice and hearing required.

In re. UNR Industries