MAY work w/ against 3rd party… BUT, NOT w/ claim against C-lender (b/c tantamount to … settlement) Waiver of right to move for court § 363(c)(2)(B) DIP’s authorization of use of as alternative to C-lender’s cash collateral consent (NO) in excess of (NO) Lien cash collateral One court recently allowed to grant to C-lender on DIP lien anticipated future profits… BUT, consider chances of future profits (did NOT happen … before C MAY end up w/ on nothing Ch. 11) lien Paying down of pre-petition principal MAYBE to the extent that is using post-petition collateral DIP (thereby endangering C-lender’s secured position)… BUT, MAY look too much like cross-collateralization clause … (depends on wording) Findings of fact re: matters extraneous to approval process (NO) of pre-petition transaction such that may NOT Securitization AR cash collateral be part of estate (NO case law on subject)… Pre-petition D sets up (“BRE”) (a.k.a. bankruptcy remote entity SPE, sub”) D transfers to C-lender loans $$ to which then AR BRE… BRE, goes to D (to complete for C-lender takes in AR)… note/SI AR… “sale” In Articles of Incorporation, it states that its ONLY C is C-lender BRE’s (who bonds)… thus, C-lender has NO interest in forcing into bankruptcy (renders BRE … bonds more risky) thus, when D customers continue paying BUT, payments Ch. 11, AR… … made to (which is NOT bankrupt) BRE have against D (if customers stop paying thus more BRE recourse AR), like a disguised secured transaction than a (which, if NOT perfected, “sale” could be as per avoided § 544(a)(1))… BUT, NOT a NO (done publicly) AND fraudulent transfer actual fraud … NO (D received for constructive fraud REV AR) Critical vendor orders…
MAY work w/ against 3rd party… … BUT, NOT w/ claim against C-lender (b/c tantamount to settlement) Waiver of § 363(c)(2)(B) DIP’s right to move for court authorization of use of cash collateral as alternative to C-lender’s consent (NO) Lien in excess of cash collateral (NO) One court recently allowed DIP to grant lien to C-lender on anticipated future profits… … BUT, consider chances of future profits (did NOT happen before Ch. 11) C MAY end up w/ lien on nothing Paying down of pre-petition principal MAYBE to the extent that DIP is using post-petition collateral (thereby endangering C-lender’s secured position)… … BUT, MAY look too much like cross-collateralization clause (depends on wording) Findings of fact re: matters extraneous to approval process (NO) Securitization of AR pre-petition transaction such that cash collateral may NOT be part of estate (NO case law on subject)… Pre-petition D sets up bankruptcy remote entity (“BRE”) (a.k.a. SPE, sub”) D transfers AR to BRE… C-lender loans $$ to BRE, which then goes to D (to complete “sale” for AR)… C-lender takes note/SI in AR… In BRE’s Articles of Incorporation, it states that its ONLY C is C-lender (who bonds)… … thus, C-lender has NO interest in forcing BRE into bankruptcy (renders bonds more risky) … thus, when D Ch. 11, customers continue paying AR… BUT, payments made to BRE (which is NOT bankrupt) BRE have recourse against D (if customers stop paying AR), thus more like a disguised secured transaction than a “sale” (which, if NOT perfected, could be avoided as per § 544(a)(1))… … BUT, NOT a fraudulent transfer NO actual fraud (done publicly) AND NO constructive fraud (D received REV for AR) Critical vendor orders…
Bankruptcy_Schechter-Fall-2009.docx