Delaware Business Bankruptcy Report: Morris James LLP Lawyers and Attorneys

Integrated Water Res., Inc. v. Shaw Envtl., Inc. (In re IT Group, Inc.), 377 B.R. 471 (Bankr. D. Del. 2007)  (Judge Mary F. Walrath)

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In re Finova Capital Corp., 356 B.R. 609 (Bankr. D. Del. 2006) (Judge Peter J. Walsh)

This case presents the bankruptcy court’s detailed findings and conclusions following a trial on a claim objection. The debtor, Finova Capital, a former middle market lender, objected to the proof of claim filed by Olsen Industries, a company which had been the initial but unsuccessful bidder for the assets of a company to which Finova had been an undersecured lender. The issues revolved around competing interpretations of a March 2000 letter agreement by which Olsen Industries agreed to serve as the stalking horse bidder in the public foreclosure sale of the assets of the company, Consolidated Industries, which manufactured and distributed gas furnaces. Olsen claimed that Finova breached the letter agreement and that it was thereby entitled to millions of dollars in damages. The court found no breach, apart from Olsen being entitled to its $100,000 break-up fee.

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Shubert v. Premier Paper Prods, LLC (In re American Tissue Inc.), Case No. 01-10370 (KG), Adv. No. 06-50929 (KG) (Bankr. D. Del. Dec. 4, 2006) (Judge Kevin Gross)

This dispute concerned numerous items of machinery and equipment which the Chapter 7 Trustee alleged belonged to the debtors but were in possession of the defendants. In this ruling, the Bankruptcy Court extended an ex parte temporary restraining order into a preliminary injunction, but with added limitations based on the evidence. The court allowed the planned auction to go forward, but escrowed the sale proceeds from the items to which it was shown the debtors might have title.

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Amphenol Corp. v. Shandler (In re Insilco Techs., Inc.),  351 B.R. 313 (Bankr. D. Del. 2006) (Judge Kevin J. Carey)

Amphenol challenged the filing of a preference action against PCM, a non-debtor subsidiary it had purchased from the debtor, because the order approving the sale did so free of all liens and encumbrances. The Court interpreted the sale agreement and order as releasing Amphenol from the estate’s claims related to the purchase and ownership of PCM’s stock, but not releasing PCM itself from any estate actions, as PCM was a distinct corporate entity from Amphenol.

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In re Loewen Group Int'l, 344 B.R. 727 (Bankr. D. Del. 2006) (Judge Peter J. Walsh)

The reorganized debtor sued the buyer of certain real estate when the buyer refused to close. When the buyer counter-claimed, the debtor moved the Bankruptcy Court to abstain in favor of arbitration. The Court held that the factors that favored abstention were substantive. Specifically, the actions were state law issues, their resolution would not have an effect on the efficient administration of the estate, and the claims in the adversary proceeding were extremely remote from the underlying Chapter 11 case. The Court granted the abstention motion and referred the case to arbitration.

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In re World Health Alternatives, Inc., 344 B.R. 291 (Bankr. D. Del. 2006) (Judge Peter J. Walsh)

The Debtors, Committee, and Senior Lender moved for approval of a global settlement and the United States Trustee objected, arguing that the Committee was not authorized to borrow and/or compromise estate claims and causes of action at the expense of priority unsecured creditors in a Chapter 11 case. The Court approved the settlement. Funds set aside for the general unsecured creditors were part of the lender’s perfected security interest and not property of the estate, so the settlement did not violate the Code’s absolute priority rule.

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Cohen v. KB Mezzanine Fund II (In re Submicron Sys. Corp.), 432 F.3d 448 (3d Cir. 2006) (Circuit Judge Thomas L. Ambro)

The Plan Administrator for the Debtor’s estate commenced an adversary proceeding seeking to recharacterize the secured claims of insiders of the debtor from debt to equity, or in the alternative, to equitably subordinate the claims and impose a constructive trust. The District Court entered judgment in favor of the defendants, and the Third Circuit affirmed. The Third Circuit held that the creditors’ security interests were properly perfected, and that their credit bids to purchase assets of the debtor were not capped by the economic value of the collateral securing their claims. Instead, they could credit bid up to the full face value of their secured claims.

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