10th Circuit Holds That First Time Transaction Falls Within 11 U.S.C. 547 (c)(2), Ordinary Course of Business Defense
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By Purvi Shah and Michelle McMahon of Bryan Cave

In re C.W. Mining. Co., the United Stated Circuit Court of Appeals for the Tenth Circuit affirmed the lower courts’ decisions holding that in a proceeding seeking to avoid and recover a payment made on account of a first time transaction between a debtor and creditor such payment can be defended under the ordinary course of business defense provided in 11 U.S.C. § 547(c)(2). In reaching its decision, the Tenth Circuit focused on the language of the statute and held that 11 U.S.C. § 547(c)(2) protects payments made in the ordinary course of business or financial affairs of the debtor and the transferee, not between the debtor and transferee. With this decision, the Tenth Circuit joined the Sixth, Seventh and Ninth Circuits that have held first time transactions defensible under 11 U.S.C. § 547(c)(2). In this context, the Ninth Circuit previously explained that “[a] first-time debt must be ordinary in relation to this debtor’s and this creditor’s past practices when dealing with other, similarly situated parties.” Wood v. Stratos Prod. Dev., LLC (In re Ahaza Sys. Inc.), 482 F.3d 1118, 1126 (9th Cir. 2007).

The full article is available here.

Earth to Creditors: Triangular Payment Arrangements May Constitute “Reasonably Equivalent Value”
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By Bryce Suzuki and Amanda Cartwright of Bryan Cave

The Eleventh Circuit Court of Appeals recently clarified the meaning of “reasonably equivalent value” in a complex fraudulent transfer case. In In re PSN USA, Inc., Case No. 14-15352 (11th Cir. Sept. 4, 2015), the Court found that payments made to fulfill contractual obligations of third parties were not fraudulent transfers where an economic benefit was directly or indirectly conferred upon the transferor.

This decision provides particular insight into fraudulent transfers in the context of parent-subsidiary and other triangular payment arrangements. Even though the debtor, a cable television channel, was not a party to the underlying satellite services contract at issue, the Court held that payments made from the debtor to the satellite services company pursuant to its parent company’s contracts constituted “reasonably equivalent value” and could not be avoided as constructive fraudulent transfers.

The Court’s opinion hinged on benefits derived by the debtor from those contracts.  Specifically, the satellite services contracts, to which the debtor was not party, permitted the debtor to operate a television channel and earn a service fee from that operation. The indirect benefit to the debtor through the contracts was sufficient to satisfy the “reasonably equivalent value” requirement, and the Eleventh Circuit affirmed the bankruptcy court’s order that the transfers were not avoidable.

The full article is available here.

Federal Antitrust Laws: A New Tool to Prohibit Pre-Petition Coordination Among Creditors?
by | posted in: Bankruptcy Administration and Jurisdiction | 0

By Bradley Purcell, Justin Sabin, and Jamila Willis, Bryan Cave LLP

In today’s economic climate, restructuring activity is at a lull. Out-of-court solutions are attractive to financially distressed companies – they avoid the delay, the costs and the uncertainty of formal bankruptcy cases. Indeed, for these very reasons, cooperation between creditors and debtors is common and often encouraged by bankruptcy courts.

Though the Bankruptcy Code contemplates participation by committees of creditors and the goal of maximizing creditor recoveries, a string of recent opinions from the Eleventh Circuit casts doubt on the ability of creditors to lawfully coordinate in their pre-petition negotiations with debtors. In CompuCredit Holdings Corp. v. Akanthos Capital Mgmt., LLC, 916 F. Supp. 2d 1326 (N.D. Ga. 2011), a debtor brought suit against creditors who attempted collective negotiation, alleging violations of Section 1 of the Sherman Act, which prohibits anti-competitive behavior. The Eleventh Circuit’s en banc panel split evenly on whether CompuCredit had an antitrust claim under the Sherman Act based on the creditors’ collective conduct.

While this doesn’t change the bankruptcy landscape, it creates uncertainty in pre-petition negotiations and out-of-court workouts. An aggressive obligor may use the Eleventh Circuit’s en banc ruling and relevant antitrust laws to impede collective, pre-petition negotiation of creditors and quell negotiations and actions by pre-petition or informal committees of creditors.

The full discussion can be found here.