Bankruptcy (1990—1991)Deprizio and Bankruptcy Code Section 550: Extended Preference Exposure Via Insider Guarantees, and Other Perils of Initial Transferee Liability
David I. Katzen, 45(2): 511–37 (Feb. 1990)
Rejecting the majority view among lower courts, the Seventh Circuit has held that if debts are guaranteed by an "insider" of the primary borrower, creditors can be required to disgorge preferential payments received from the borrower more than ninety days but less than a year before its bankruptcy, even though the creditors would have been immune from that attack without the guarantees. Levit v. Ingersoll Rand Fin. Corp . ( In re V.N. Deprizio Constr. Co.), 874 F.2d 1186 (7th Cir. 1989). After briefly reviewing the basics of preference law and the controversy over the insider guarantee problem, this Article summarizes the Deprizio decision and highlights difficulties that could flow from its literal reading of the Bankruptcy Code section, which allows recovery from initial transferees of avoided transfers. The author then considers what the law "ought" to be and finally explores protective measures that lenders might employ in coping with the present hazards.
Financing the Chapter 11 Debtor: The Lenders' Perspective
Mark L. Prager, 45(4): 2127–50 (Aug. 1990)
The commencement of a business reorganization and attendant financing requirements present the knowledgeable creditor-lender with an opportunity to enhance recovery of prepetition loans and to advance the prospects for a successful reorganization. This Article reviews the inducements to extend credit provided by the Bankruptcy Code and discusses the risks and benefits that should be considered prior to financing the Chapter 11 debtor.
Waiving Subrogation Rights and Conjuring Up Demons in Response to Deprizio
Peter L. Borowitz, 45(4): 2151–68 (Aug. 1990)
In response to the insider guaranty preference risk involved in the Deprizio controversy, many commentators have proposed that lenders require any insider guarantor to waive its subrogation rights against the primary obligor. This Article argues that any such technical device will only exacerbate the substantive problem and create a fraudulent conveyance risk for the lender. The Article also discusses how an overly literal reading of the Deprizio decision has led some commentators to exaggerate its impact on secured financings and letter-of-credit transactions.
Current Developments in International Insolvency Law and Practice
Daniel M. Glosband and Christopher T. Katucki, 45(4): 2273–80 (Aug. 1990)
Good Faith and Chapter 13 Plans for Debts Nondischargeable Under Chapter 7 of the Bankruptcy Code: A Proposal To Assure Rehabilitation, Not Liquidation
Mark E. Roszkowski, 46(1): 67–109 (Nov. 1990)
To promote repayment rather than avoidance of consumer debt, the Bankruptcy Code provides that debtors who successfully complete Chapter 13 rehabilitation plans are entitled to a discharge of virtually all debts provided for by the plan, including many debts that survive a Chapter 7 liquidation, such as student loans and intentional tort judgments. Many debtors, however, attempt to use Chapter 13 as a liquidation device by including large nondischargeable Chapter 7 debts in Chapter 13 plans, providing only nominal repayment of unsecured creditors, who often challenge such plans as violating the statutory requirement that such plans be "proposed in good faith." This Article summarizes the good-faith analysis currently used by the courts in judging Chapter 13 plans and proposes an alternative analysis that is capable of more consistent judicial application. The suggested analysis would assure that Chapter 13 is used for its intended purpose—debtor rehabilitation through repayment of debt.
Federal Tax Liens: Making Bankruptcy Attractive to Creditors
Michael St. James, 46(1): 157–72 (Nov. 1990)
Creditors are often best served by convincing their debtor to file bankruptcy before, or at least shortly after, a federal tax lien is filed. Outside of bankruptcy, the federal tax lien exercises extraordinary powers, supplanting the rights of existing, perfected blanket lien creditors in their collateral and potentially eliminating any prospect of recovery for unsecured creditors. After the debtor files bankruptcy, however, the blanket lien creditor's rights in its collateral can be preserved and the federal tax lien is automatically subordinated to certain unsecured claims.
The Interface Between Bankruptcy and Environmental Laws
Arlene Elgart Mirsky, Richard J. Conway, Jr., and Geralyn G. Humphrey, 46(2): 623–91 (Feb. 1991)
Because of the pervasiveness of environmental concerns and bankruptcy concerns in business today, it is important for businesses and their counsel to understand how the environmental laws and the bankruptcy laws interact. This Article discusses how bankruptcy affects environmental issues and offers practical guidance for the debtor, creditor, and their counsel when facing these issues.
Special Report by the TriBar Opinion committee: Opinions in The Bankruptcy Context: Rating Agency, Structured Financing and Chapter 11 Transactions
TriBar Opinion committee, 46(2): 717–49 (Feb. 1991)
In the 1970s, requests for third-party legal opinions on bankruptcy law issues emerged in certain financial and commercial transactions. This Special Report examines these opinions, sets forth the conclusion of the TriBar Opinion committee with respect to the scope and limitations of these opinion, and provides illustrative forms of opinions and a method of incorporating by reference this Special Report into bankruptcy law opinions. This is the fourth Report of the TriBar Opinion committee on legal opinion subjects.