Chapter 11 today
Two recent chapter 11 stories strike me as indications of how the growth of secured lending to distressed companies, particularly second lien and other subordinated forms of secured lending, have changed chapter 11. One is the Chrysler creditors' fraudulent transfer suit against former parent Diamler and the other is today's report that Circuit City is suing Sirus radio, seeking $7 million for breach of contract (no link), while another story reports that Circuit City will pay no more than 13.5% to unsecured creditors.
Both suits strike me as desperate attempts to find something, anything for unsecured creditors -- what are the chances Daimler spun off Chrysler without getting an opinion that the deal did not constitute a fraudulent transfer? And $7 million is a really small suit for a company the size of Circuit City to bring to actual litigation -- how much is it going to cost to recover that $7 million?
The complaint in the Chrysler case can be found here.
"what are the chances Daimler spun off Chrysler without getting an opinion that the deal did not constitute a fraudulent transfer?"
Even if they did, what evidentiary value should it be accorded?
Posted by: mt | August 26, 2009 at 12:59 PM
"what are the chances Daimler spun off Chrysler without getting an opinion that the deal did not constitute a fraudulent transfer?"
That's a good question. In fact, according to the allegations of the Complaint, the restructuring plan was suggested by E&Y (and I guess to a lesser extent JP Morgan Chase). See paragraphs 30 and forward.
On the other hand, though, would the bankruptcy judge authorize the suit if it had no merit whatsoever, and would the attorneys agree to pursue it?
I'm following this case in a series on my blog, which can be found at (if you'll permit the plug) floridacollectionlaw.blogspot.com, and I'd love to hear more discussion on this.
Posted by: Craig R. Lewis, Esq. | August 26, 2009 at 02:31 PM