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| vol 15, num 4 | September/OCTOBER 2018 |
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| Chapter 15 Settlements and Sales: Noticing Foreign Creditors and the Three-Step Approval Process |
| Similar to domestic bankruptcy cases, in chapter 15 cases the sale or disposition of property located in the U.S. may be accomplished pursuant to asset sales under § 363 of the Bankruptcy Code, Rule 9019 settlements, or a combination of the two. In a chapter 15 proceeding, the foreign representative must provide notice to all creditors regarding settlements and asset sales and obtain timely approval from the U.S. bankruptcy court and the foreign court, if required by the law of the foreign main jurisdiction.
This appears to cause two practical dilemmas: (1) determining the required standard for appropriate notice to foreign creditors; and (2) determining how to effectively seek approval from both bankruptcy courts nearly simultaneously and efficiently streamline any potential objections. Recently, in a chapter 15 case filed in the Southern District of Florida, In re Banco Santos S.A., involving a failed Brazilian financial institution stemming from a $1 billion fraud perpetrated by its CEO and others, Hon. Laurel M. Isicoff dealt with these issues.
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| Seventh Circuit Throws Potential Life Raft to Completely Underwater Junior Creditors by Leaving Open an Argument for Adequate Protection in a § 363 Sale |
| Adequate protection is one of the central protections provided to secured creditors by the Bankruptcy Code, and it is designed to protect against any diminution of the value of the secured creditor’s lien during the course of a debtor’s bankruptcy proceedings. Adequate protection must be provided when, among other circumstances, a debtor sells a secured creditor’s collateral pursuant to Bankruptcy Code § 363. Under § 363(e), the burden is on the secured creditor to request adequate protection in connection with a sale, including the burden of demonstrating that the value of its lien will diminish because of the sale.
In its recent decision in Ill. Dep't of Revenue v. Hanmi Bank, 895 F.3d 465 (7th Cir. 2018), the Seventh Circuit considered whether a junior creditor was entitled to adequate protection in connection with a § 363 sale where the senior lender was undersecured and therefore would not be paid in full. The Seventh Circuit assumed, without deciding, that the junior creditor’s ability to pursue the purchaser by way of a successor liability claim was an interest entitled to adequate protection, but held that adequate protection was not required due to the failure of the junior creditor to satisfy its burden of providing evidence on the value of its interest.
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| Join Us for this Year's Winter Leadership Conference in Scottsdale, Arizona! |
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The Asset Sales Committee is coordinating with the Financial Advisors & Investment Banking Committees to host a session titled Attorneys and Advisors For All of Us: Representation of Directors and Manager in the Sale of Debtor Assets. This panel will focus their discussion on the need for disinterested independent directors to employ their own counsel/FAs/IBs in connection with the sale of assets. The main topic will be based on the facts in the Toys “R” Us case, where six groups of independent managers and directors have their own separate counsel and advisors. The panelists believe that similar facts exist in other recent cases, and more cases
will reflect this in the future. The panel will discuss such topics as the need for this type of representation, the costs associated and how such costs are accounted for in the case, and what other legal and ethical implications all of this can have on the sale of a debtor’s assets.
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