Legal Updates
February 2012 – Auburn Hills, Michigan Based Energy Conversion Devices, Inc. Files Chapter 11 Bankruptcy
On February 14, 2012, Auburn Hills, Michigan based Energy Conversion Devices, Inc., filed Chapter 11 Bankruptcy in the United States Bankruptcy Court for the Eastern District of Michigan. The case has been assigned to Hon. Thomas J. Tucker, Case No. 12-43166.
According to the Declaration of William C. Andrews filed with the Bankruptcy Court, Energy Conversion Devices is a publicly traded holding company listed on the NASDAQ Global Select Market that deals in the solar energy industry through its subsidiaries, which include United Solar Ovonic LLC and Solar Integrated Technologies, Inc. United Solar Ovonic filed a Chapter 11 Bankruptcy on February 14, 2012, and Solar Integrated Technologies filed a Chapter 7 Bankruptcy on February 14, 2012. According to the Declaration, Energy Conversion Devices’ “current financial position is insufficient to sustain the current operating environment and make the necessary investments for the future of the solar business without restructuring through the bankruptcy process.” It appears that Energy Conversion Devices and United Solar Ovonic will attempt to sell all or substantially all of their assets in a bankruptcy sale.
February 2012 – Post-Confirmation Antitrust Liability Not Barred by Plan's Discharge Provisions
On February 10, 2012 the United States Bankruptcy Court for the Southern District of New York determined that a class holding antitrust claims against a group of reorganized debtors, including Lear Corporation, may amend the complaint in its antitrust litigation to rely on the debtors’ conduct after the effective date of the chapter 11 reorganization plan and to seek to measure the debtors’ liability by activity before the effective date of the plan. However, the court enjoined the continuation or commencement of antitrust claims that arose before the effective date of the chapter 11 plan.
The debtors’ chapter 11 reorganization plan included the discharge of all claims and causes of action against the debtors, as well as a corollary injunction which enjoined “all Entities who have held, hold or may hold” claims against the debtors from continuing or commencing an action. Despite these discharge provisions, the court concluded that the class was entitled to seek recovery on its claims that arose after the effective date of the reorganization plan based on the claim-holders’ assertion that the debtors had committed acts after the effective date of the chapter 11 plan that were in furtherance of a price-fixing scheme. Because antitrust law may impose liability on a conspirator for earlier harm caused by co-conspirators, the court decided that the debtors were not entitled to an injunction barring claims based on their conduct after the effective date of the chapter 11 plan. However, the court determined that the merits of these claims should not be decided by the bankruptcy court, but rather by the antitrust court. The antitrust litigation, captioned Chase v. Delphi Automotive LLP, is before the United States District Court for the Eastern District of Michigan.
The case is In re Lear Corporation, Case No. 09-14326 (S.D. N.Y. Feb. 10, 2012).
February 2012 – Involuntary Chapter 11 Bankruptcy Filed against Saab Cars North America, Inc.
On January 30, 2012, more than 40 creditors filed an involuntary Chapter 11 bankruptcy against Royal Oak, Michigan based Saab Cars North America, Inc. in the United States Bankruptcy Court for the District of Delaware. The case has been assigned to Hon. Christopher S. Sontchi, Case No. 12-10344. The petitioning creditors, whose claims purport to exceed $1.230 million, allege that they are owed monies from Saab Cars North America, Inc. related to “unpaid warranty and incentive reimbursement and related obligations.”
January 2012 – Recent Madoff Decision Confirms Trustee Can Claw Back All Proceeds from Ponzi Scheme
A recent decision by the New York Southern District Court in the Madoff cases held that a bankruptcy trustee can recover both principal and interest a transferee received from a Ponzi scheme operator, absent good faith. The court held that any transfer made to allegedly serve a Ponzi scheme is presumed to be made with actual intent to hinder, delay, or defraud creditors. This allegation is sufficient to adequately plead a fraudulent transfer action, requiring a transferee to return all proceeds it received from the debtor.
The transferee argued that the trustee had failed to plead adequate “red flags” that should have put the
transferee on notice of a potential fraud. However, the court held that the trustee is not required to plead
lack of good faith as the element of a fraudulent transfer claim; whether a reasonable person should have
been suspicious of the transferor is a question of fact. The decision affirms cases across the country
requiring that courts closely scrutinize willfully blind transferees who accept unusually high rates of return
from Ponzi scheme operators.
The case is Picard v. Merkin (In re Bernard L. Madoff Inv. Secs. LLC), 2011 U.S. Dist. LEXIS 97647 (S.D.N.Y. Aug. 31, 2011).
January 2012 – Seventh Circuit Holds Substitute Collateral (Treasury Bonds) not “Indubitable Equivalent” of Real Property in Single Asset Real Estate Case
On January 19, 2012, the Seventh Circuit Court of Appeals – in a direct appeal – affirmed the Bankruptcy
Court’s denial of plan confirmation in a single asset real estate case where the debtor proposed
substituting the lender’s lien on the building with 30-year Treasury bonds. The lender was owed $38.3
million on a building valued by the debtor at $13.5 million.
The Court noted that section 1129(b)(2)(A) of the Bankruptcy Code permits a debtor to cram
confirmation down the throat of a secured creditor if the secured creditor’s lien is exchanged for an
“indubitable equivalent.” The Court held that the Treasury bonds and the building were not “indubitable
equivalents” because of their different risk profiles, and that “there is no reason why the choice
between them should be made for the creditor by the debtor.”
The case is In re River East Plaza, LLC, Case No. 11-3263 (7th Cir., Jan. 19, 2012).
October 2011 – Sixth Circuit Bankruptcy Appellate Panel Holds Filing Motion to Assume Lease before Assumption/Rejection Deadline Sufficient
On September 29, 2011, the Bankruptcy Appellate Panel (“BAP”) for the Sixth Circuit Court of Appeals affirmed an order of the Bankruptcy Court for the Eastern District of Kentucky holding that Debtor's motion to assume a lease, filed before the deadline for assuming or rejecting leases under 11 U.S.C. Section 365(d)(4), complied with the deadline. The BAP relied upon pre- and post-BAPCPA decisions holding that the filing of a motion to assume satisfied the deadline, and that entry of an order of assumption before the deadline was not required.
Cousins Properties, Inc. v. Treasure Isles HC, Inc. (In re Treasure Isles HC, Inc.), 2011 FED App. 0011P (6th Cir. BAP)
September 2011 – Supreme Court Limits Bankruptcy Court Jurisdiction in Stern v. Marshall
The United States Supreme Court's recent decision in Stern v. Marshall could have a significant impact on bankruptcy litigation. The Court ruled, in a 5-4 decision, that the statutory grant of jurisdiction to Bankruptcy Courts to enter final judgments on a debtor’s state-law counterclaim against a non-debtor is unconstitutional.
The case is widely known as the bankruptcy case of Anna Nicole Smith, whose real name was Vickie Lynn Marshall. The Court held that her state-law based counterclaim against a non-debtor for tortuous interference with contract constituted a “core proceeding” under the plain text of 28 U.S.C. section 157(b)(2)(C), which defines “core proceedings” to include “counterclaims by the estate against persons filing claims against the estate.” Therefore, the Bankruptcy Court had statutory authority to enter a final judgment.
The Court noted, however, that the counterclaim was in no way derived from or dependent upon bankruptcy law; it was a state tort action that exists without regard to any bankruptcy proceeding. The Court went on to hold that section 157(b)(2)(C)’s statutory grant of jurisdiction to Bankruptcy Courts to decide such claims violates Article III of the Constitution. “The Bankruptcy Court below lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor’s proof of claim.”
The case could have wide-ranging and costly implications, by requiring issues central to a debtor’s bankruptcy case to be litigated in a non-bankruptcy forum.
May 2011 – Third Circuit Clarifies Constitutional and Bankruptcy Standing Requirements
The Third Circuit Court of Appeals recently held that insurance companies met standing requirements under Article III of the U.S. Constitution and the Bankruptcy Code, allowing them to challenge the channeling of silica-related claims against the debtors into a settlement trust in the context of debtors’ reorganization. The case is In re Global Industrial Technologies, 2011 U.S. App. Lexis 9109 (3d Cir. May 4, 2011).
Debtors, manufacturers and sellers of refractory products, faced exposure for silica-related liability. Debtors proposed a Chapter 11 plan that employed a channeling injunction for silica-related suits to be brought against a “Silica Trust,” which was a mass-tort trust created to address the claims. Appellants’ insurance policies were to be assigned to the Silica Trust. The plan provided that nothing would preclude the insurers from asserting any rights or defenses under the policies, except those related to anti-assignment provisions.
The Bankruptcy Court and District Court determined that the insurance companies lacked standing to object to the plan. The Third Circuit Court of Appeals reversed, finding that the insurance company Appellants had “bankruptcy standing.” The court held that, to have bankruptcy standing, a party must first meet the requirements for standing under Article III of the Constitution. Standing in bankruptcy cases is also governed by 11 U.S.C. 1109(b), which permits a party in interest to be heard on any issues in a case. The court held that 1109(b) is to be construed broadly and is no more restrictive than constitutional standing requirements.
Appellant insurance companies met the standing requirements because they had legally protected interests that could be affected by the bankruptcy proceedings. The court noted that the establishment of the Silica Trust was not “insurance neutral,” and “appears to have staggeringly increased” the Appellant insurance companies’ pre-petition liability exposure. The court summarized its decision as “no more far reaching than this: when a federal court gives its approval to a plan that allows a party to put its hands into other people’s pockets, the ones with the pockets are entitled to be fully heard and to have their legitimate objections addressed. In short, they at least have bankruptcy standing.”
March 2011 – Second Circuit Holds “Gifting” Property to Junior Creditor Violates Absolute Priority Rule
The United States Court of Appeals for the Second Circuit recently held that a senior secured creditor’s gift of a portion of its collateral to a debtor’s shareholder violated the absolute priority rule of section 1129(b)(2)(B) of the Bankruptcy Code. Dish Network Corp. v. DBSD N. Am., Inc. (In re DBSD N. Am. Inc.), 210 U.S. App. LEXIS 27007 (Feb. 7, 2011). The absolute priority rule requires that, if a class of senior claim holders will not receive the full value of their claims under the plan and the class does not accept the plan, no junior claim or interest holder may receive any property on account of its claim or interest.
Unsecured creditors of DBSD were to receive an estimated 4%-46% of their claims under the plan. The value of DBSD’s assets was also insufficient to cover the amount of the gifting secured creditor’s debt. The plan provided that an existing shareholder, whose interest was junior to the objecting unsecured creditor, would received shares of the reorganized entity. The Bankruptcy Court held that the shares were a “gift” from secured creditors who may “voluntarily offer a portion of their recovered property to junior stakeholders,” without violating the absolute priority rule. The District Court affirmed. The Second Circuit Court of Appeals reversed, finding that the gift, which resulted in a shareholder receiving property without unsecured creditors being paid in full, violated the absolute priority rule.
Gifting plans are now prohibited by published decisions of the Second and Third Circuit Courts of Appeals.
February 2011 – Important Michigan Bankruptcy Court Opinion Regarding Defenses to a Preference Action
In a recent decision from the United States Bankruptcy Court for the Eastern District of Michigan, the Court provided clarity to the interpretation of ordinary business terms defense of 11 U.S.C. § 547(c)(2)(B) post-BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) in the Sixth Circuit. In Basil T. Simon v. Gerdau MacSteel, Inc., Adv. Proc. No. 08-05578, Judge Phillip J. Shefferly ruled that the ordinary business terms defense of § 547(c)(2)(B) has not acquired a new meaning post-BAPCPA.
Basil T. Simon, the Chapter 7 Trustee, argued that Congressional changes to § 547 rendered pre-BAPCPA § 547 case law less instructive when interpreting post-BAPCPA § 547 because courts historically subordinated the importance of the ordinary business terms defense. Therefore, the Trustee argued that the substitution of the word “or” for the word “and” in § 547(c)(2) breathed new life into the meaning and importance of the ordinary business terms defense. In rejecting this argument, Judge Shefferly held that revisiting the ordinary business terms defense of § 547(c)(2) may be warranted in other circuits where controlling precedent is unclear, but it was unnecessary in the Sixth Circuit where the standard is clear and consistent. Judge Shefferly pointed to the Sixth Circuit’s pre-BAPCPA interpretation of the ordinary business terms defense in Luper v. Columbia Gas of Ohio, Inc., 91 F.3d 811, 818 (6th Cir. 1996), holding that ordinary business terms means that the transaction is not so unusual to render it an aberration in the relevant industry. The Court granted summary judgment in favor of Gerdau MacSteel, Inc. under § 547(c)(2)(B).
The Court also granted summary judgment in favor of Gerdau MacSteel, Inc. under the ordinary course of business prong of § 547(c)(2)(A). In so doing, the Court made the following findings: (a) that an increase in the average days paid after invoice of 4 days from the year before the preference period to the preference period was “not a material change, especially when the lag time between invoice date and payment date lengthened, rather than shortened”; (b) that a “change in the method of payment by itself is not sufficient to conclude that a particular payment was not within the ordinary course of business . . . .”; and (c) the fact that payments did not match up with specific invoice amounts is not sufficient to remove the transfers from the ordinary course of business defense. The Court held that there was no issue of material fact that the payments made during the preference period were consistent with past practices and normal relations between the parties.
February 2011 – Ann Arbor Based Borders Files for Bankruptcy
Ann Arbor based Borders Group Inc., the country’s second largest bookstore chain, filed for Chapter 11 bankruptcy protection in New York City on February 16, 2011. Borders listed assets of $1.28 billion and liabilities of $1.29 billion as of December 25, 2010.
The Bankruptcy Court has approved the closing of 200 of Borders’ 642 stores, including four of its 32 stores in Michigan, as part of the company’s restructuring efforts. The Michigan stores slated to close are in Utica, Dearborn, Grosse Point, and Ann Arbor.
January 2011 – Michigan Court of Appeals Interprets Molder’s Lien Act
The Michigan Court of Appeals has held that the attachment of a moldbuilder’s lien under the Molder’s Lien Act, MCL 445.611 et seq., requires some form of permanently recorded information on the mold, die or tool identifying the name of the moldbuilder, its street address, city and state. C.G. Automation & Fixture v. Autoform, Michigan Court of Appeals Case No. 286361 (January 20, 2011) (Markey, Zahra, and Gleicher) (Published).
The moldbuilder in this case filed a UCC financing statement asserting a lien on the dies and permanently recorded its identifying information on metal risers that could be separated from the dies. The Court held that the moldbuilder’s identifying information was not recorded “on” the dies, as required by the Molder’s Lien Act, because the risers were readily removable from the die. The UCC financing statement alone was held insufficient to create a lien – “the Legislature clearly intended that subsequent possessors of a die would receive actual notice of the name and address of the moldbuilder.”
Judge Gleicher concurred in the result and called on the Michigan Legislature to clarify ambiguities in the Molder’s Lien Act. She specifically noted an ambiguity in the statute where a moldbuilder properly marks the mold but does not file a UCC. “One reasonable interpretation of this language suggests that even absent the moldbuilder’s filing of a financing statement, the moldbuilder acquires an enforceable lien if it has permanently affixed identifying information on the tool.”
January 2011 – Noble Liquidating Trustee Begins Filing Preference Actions
The Liquidating Trustee of the Noble Liquidating Trust has begun filing adversary complaints against creditors alleged to have received preferential transfers within 90 days of Noble International, LTD. et al.’s April 15, 2009 bankruptcy filing. Noble International, LTD. et al.’s chapter 11 bankruptcy proceedings are pending in the United States Bankruptcy Court for the Eastern of Michigan, Case No. 09-51720 (Judge Marci B. McIvor).
January 2011 – Significant Changes Made to Federal Rules of Civil Procedure Regarding Expert Witnesses
Recent amendments to Federal Rule of Civil Procedure 26 address the disclosure of expert testimony and attorney-expert communications. These changes are significant and took effect December 1, 2010:
• The expert report requirement of Rule 26(a)(2)(B)(ii) was amended by striking “the data or other information considered by the witness . . . ” and replacing it with “the facts or data considered by the witness . . . .” The refocus of disclosure on “facts or data” is meant to limit disclosures to material of a factual nature and to exclude theories and mental impressions of legal counsel.
• Section (a)(2)(C) was added to Rule 26, which requires summary disclosures of opinions to be offered by expert witnesses who were not previously required to provide reports under Rule 26. This disclosure is less extensive than disclosures required by Rule 26(a)(2)(B). It requires disclosure of only the subject matter on which the witness is expected to present evidence under Rules 702, 703, and 704 and a summary of facts and opinions about which the witness is expected to testify.
• Rule 26(b)(4)(B) was added to Rule 26 to clarify that drafts of expert reports are no longer discoverable.
• Similarly, Rule 26(b)(4)(C) was added to provide work-product protection to any attorney-expert communication, regardless of the form of the communication, except for communications (i) relating to the compensation of the expert’s study or testimony; (ii) identifying facts or data the attorney provided and the expert considered in forming opinions; and (iii) identifying assumptions the attorney provided and that the expert relied upon in forming opinions.
November 2010 – Meridian Automotive Systems' Chapter 7 Trustee Sends Preference Demand Letters
George L. Miller, the Chapter 7 Trustee of Meridian Automotive Systems, Inc. et al., has begun sending demand letters to creditors alleged to have received preferential transfers within 90 days of Meridian’s August 7, 2009 bankruptcy filing. Meridian’s bankruptcy is pending in the United States Bankruptcy Court for the District of Delaware, Case No. 09-12806.
November 2010 – Amendments to Article 9 of the Uniform Commercial Code Approved
In what will be the first amendments to Article 9 of the Uniform Commercial Code since the adoption of Revised Article 9 in 2001, the National Conference of Commissioners on Uniform State Laws met and approved changes to several provisions of Article 9. While these amendments remain subject to revisions by the Committee on Style of the National Conference of Commissioners on Uniform State Laws, it is expected that the substance of the revisions will remain unchanged when they are made effective on July 1, 2013.
These changes are not as sweeping as those made in 2001. Some, however, impact how secured creditors perfect their security interests and what assets secured creditors are perfected in after a debtor’s location changes. The most significant appears to be the proposed changes to UCC § 9-503 with respect to the debtor’s name and UCC § 9-316 with respect to a change in the location of a debtor.
The majority of the amendments to UCC § 9-503 relate to names of individual debtors. As revised, UCC § 9-503 provides additional guidance with respect to the correct name to use for individual debtors. States may pick between two options, the “only if” option and the “safe harbor” option. Both options include the concept of using an individual debtor’s unexpired driver’s license to determine the correct name against which to file a UCC financing statement. Currently, no such direction exists under UCC § 9-503. Secured creditors will need to be aware of what version of UCC § 9-503 their debtor’s state of principal residence has adopted to ensure that they comply with the new rules.
Regarding the change of a debtor’s location, the revisions to UCC § 9-316(h) and (i) will continue to provide secured creditors four months to perfect their security interest in the debtor’s new location. After adoption of these amendments, existing perfected secured parties will be perfected in collateral acquired by the debtor during that four-month period, not just collateral existing on the date the debtor’s location changed. While these changes will provide secured parties additional protections, secured creditors will still need to be diligent to ensure they file in the correct location before the end of this four-month period, or, as before, they will face the loss of their perfection in the debtor’s assets.
You can find a copy of all of the UCC Article 9 amendments at http://www.iaca.org/downloads/2010Conference/STS/UCC9_AMdraft_Jul10.pdf/
October 2010 – Landlord’s Right to Recover Post-Bankruptcy “Stub Rent” from Bankrupt Tenant Clarified in Third Circuit Court of Appeals
Tenants often plan their bankruptcy filings to minimize the amount of rent they must pay in the month they file their bankruptcy petition. Courts have disagreed over what type of claim a landlord has for “stub rent,” which is the rent due to a landlord for the period of occupancy between the bankruptcy filing date and the due date of the first post-bankruptcy rent payment. For example, if a tenant’s lease payment is due on the first of the month and the tenant files bankruptcy on the 9th of the month, the “stub rent” period would be the 9th through month-end. The Third Circuit Court of Appeals recently held that “stub rent” may be allowed as an administrative expense under 11 U.S.C. § 503(b)(1).
In In re Goody’s Family Clothing Inc., Goody’s rent was due on the first of each month. Goody’s filed bankruptcy on June 9, 2008 without having paid its June 1st rent payment. Thus, the “stub rent” period was June 9 through June 30, 2008. Goody’s argued that the landlords’ claims for stub rent should be general unsecured claims with no special priority, while Goody’s landlords sought payment as administrative expense claims.
The court held that the landlords’ claims for “stub rent” were entitled to administrative expense priority. More specifically, the court held that the statutory duty of a debtor under 11 U.S.C. § 365(d)(3) to timely perform all post-bankruptcy obligations under a lease of nonresidential real property does not supplant § 503(b)(1), which provides for allowance of administrative priority claims where a claimant meets its burden of demonstrating that it conferred an actual and necessary benefit to the debtor in the operation of the debtor’s business.
In re Goody’s Family Clothing, 610 F.3d 812 (3d Cir. 2010).
October 2010 – Gainey Corporation Initiates Preference Actions
Barry P. Lefkowitz, Liquidation Trustee of the Gainey Companies Liquidation Trust, has recently initiated preference actions in the United States Bankruptcy Court for the Western District of Michigan seeking the recovery of payments or other transfers from Gainey within 90 days of Gainey Corporation’s and its associated debtors’ bankruptcy filings on October 14, 2008.
August 2010 – Ohio Bankruptcy Court Rules in Favor of Wolfson Bolton PLLC's Creditor Client in
Involuntary Bankruptcy Case
An Ohio Bankruptcy Judge ruled in favor of Wolfson Bolton PLLC's creditor client in an involuntary bankruptcy case filed in Toledo. The client, a creditor of an accounting firm, filed an involuntary bankruptcy petition against the accounting firm. The accounting firm claimed the involuntary petition was improper because it disputed the debt and claimed to have dissolved as a corporation. The Court held that there was no bona fide dispute concerning the client's claim, that the accounting firm was eligible to be a debtor, and ordered relief under Chapter 7 of the Bankruptcy Code.
The Court's Memorandum of Decision can be read here in full. read more..
July 27, 2010 – Unsecured Creditors’ Hopes of Recovery in Chrysler Bankruptcy Diminish after Dismissal of
Daimler AG Litigation
On July 2010, Judge Arthur Gonzalez of the United States Bankruptcy Court for the Southern District of New York dismissed a lawsuit initially brought by the Unsecured Creditors’ Committee of Old Carco LLC against Daimler AG seeking the recovery of billions of dollars Daimler AG allegedly acquired before the sale of Chrysler to Cerberus Capital Management LP in 2007. The proceeds from the Daimler AG litigation represent the sole source of potential recovery for unsecured creditors under Old Carco LLC’s Joint Plan of Liquidation.
The order dismissing the lawsuit provides that creditors have 60 days to re-plead certain allegations.
July 2010 – Judge Rules Delphi’s Preference Complaints Fail to Plead Facts Sufficient to State a Claim for Relief
In a positive development for Wolfson Bolton PLLC clients, Judge Robert D. Drain of the United States Bankruptcy Court for the Southern District of New York recently ruled that hundreds of preference complaints filed by Delphi Corporation fail to meet the pleading requirements of Federal Rule of Civil Procedure 8(a)(2). Relying on the United States Supreme Court’s decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), Judge Drain ruled that Delphi’s preference complaints fail to plead sufficient facts with respect to: (i) the identity of the debtor/alleged transferor; (ii) the nature or amount of antecedent debt; and (iii) the identity of the initial transferee where Delphi sued more than one defendant.
Judge Drain further ruled that Delphi has 45 days to file a motion for leave to amend the preference complaints, and that any motion to amend must attach a revised complaint setting forth sufficient facts to state a claim for relief. This ruling represents another example of the heightened federal pleading requirements applied in bankruptcy proceedings.
September 2011 – Second Circuit Addresses Successor Liability in UCC Article 9 Sale Context
The Second Circuit's decision in Call Center Technologies, Inc. v. Grand Adventures Tour & Travel Publishing Corp. to vacate the District Court for the District of Connecticut’s grant of summary judgment on a successor liability claim is a reminder that “friendly” foreclosure sales may not always shield the purchaser from successor liability. The court held that, in light of the similarities between the purchaser and the debtor, granting summary judgment was in error. “Continuity of enterprise” factors cited by the Second Circuit included the fact that the debtor and purchaser operated out of the same location, had the same core business, and had many of the same employees. An additional factor supporting the “mere continuation” exception was that the purchaser had been formed by the secured creditor for the specific purpose of purchasing the assets of the debtor via a credit bid in an out-of-court proceeding at a public auction.
As a general proposition, pursuant to Article 9 of the Uniform Commercial Code (“UCC”) (specifically sections 9-610 and 9-611 of the UCC), secured creditors are entitled to foreclose on the assets of debtors and sell them, by private sale or public auction, free and clear of security interests junior to those of the secured lender. One exception to this rule is the “mere continuation” theory, which the Second Circuit cited as its reason for remanding the case to the District Court for further proceedings.