Valuation of property critical to relief again, if C is then claim undersecured, subject to (as per bifurcation § 506(a))… 3 major techniques for valuation… lowest possible (distressed/“fire” sale) Liquidation above but NOT retail (i.e. Wholesale value liquidation value, inventory) value if sold by willing seller to willing buyer concern value Valuation technique used depends on nature of D’s business model if NO hope for reorganization, then more likely… BUT, if D liquidation value expected to emerge from then more likely Ch. 11, going concern value if C is then entitled to interest AND (to extent § 506(b) oversecured, that C is oversecured)… Loan agreement provides for (ordinary rate) AND contract interest default (increase in case of default)… interest Conservative lenders want as reward for prudent default interest ratio and/or charging low (since there contract interest is still equity in collateral)… BUT, courts dislike (eating up equity in property default interest … b/c unpaid interest folded back into principal) MAY be able to get at 1-3% (anything greater is default interest contract interest likely unreasonable) Unlikely to recover all attorney’s fees NO fees are uniformly “reasonable” Unlikely to recover in CA pre-payment fees unreasonable per se C-lender expects $$ loaned to be (earning interest over “working” time)… thus, if D prepays (i.e. then C-lender must reposition refi), $$ elsewhere to replace lost income/interest… BUT, are deemed synonymous w/ pre-payment fees liquidated … NO relation b/w harm suffered AND size of penalty (i.e. damages [date], [$$]”)… unless, not delivered by then must pay “If recitals in agreement (re: difficulty in determining damages, estimations made, reasons why)… though, generally difficult for C-lender to justify pre-payment … C-lender MAY re-lend $$ elsewhere (decrease in income/ fees interest likely NOT big) broadly b/c courts will generally interpret narrowly (i.e. fee clauses fees incurred in bankruptcy litigation used to NOT be recoverable, BUT law is changing)…
Valuation of property critical to relief again, if C is undersecured, then claim subject to bifurcation (as per § 506(a))… 3 major techniques for valuation… Liquidation lowest possible (distressed/“fire” sale) Wholesale value above liquidation value, but NOT retail (i.e. inventory) concern value value if sold by willing seller to willing buyer Valuation technique used depends on nature of D’s business model if NO hope for reorganization, then liquidation value more likely… BUT, if D expected to emerge from Ch. 11, then going concern value more likely § 506(b) if C is oversecured, then entitled to interest AND (to extent that C is oversecured)… Loan agreement provides for contract interest (ordinary rate) AND default interest (increase in case of default)… Conservative lenders want default interest as reward for prudent ratio and/or charging low contract interest (since there is still equity in collateral)… … BUT, courts dislike default interest (eating up equity in property b/c unpaid interest folded back into principal) MAY be able to get default interest at 1-3% contract interest (anything greater is likely unreasonable) Unlikely to recover all attorney’s fees NO fees are uniformly “reasonable” Unlikely to recover pre-payment fees unreasonable per se in CA C-lender expects $$ loaned to be “working” (earning interest over time)… thus, if D prepays (i.e. refi), then C-lender must reposition $$ elsewhere to replace lost income/interest… … BUT, pre-payment fees are deemed synonymous w/ liquidated damages NO relation b/w harm suffered AND size of penalty (i.e. “If not delivered by [date], then must pay [$$]”)… unless, recitals in agreement (re: difficulty in determining damages, estimations made, reasons why)… … though, generally difficult for C-lender to justify pre-payment fees C-lender MAY re-lend $$ elsewhere (decrease in income/ interest likely NOT big) fee clauses broadly b/c courts will generally interpret narrowly (i.e. fees incurred in bankruptcy litigation used to NOT be recoverable, BUT law is changing)…
Bankruptcy_Schechter-Fall-2009.docx