In re Alameda Investments, LLC: The Liquidating Trustee Has More Than an Economic Interest

The Ninth Circuit B.A.P. has affirmed in In re Alameda Investments, LLC that transfer restrictions in a limited liability company operating agreement to which the debtor was a party do not prohibit transfer of the debtor’s entire membership interest (including voting rights) to a liquidating trust established pursuant to the debtor’s chapter 11 plan.

In this case, the debtor was a member of a two-member limited liability company, West Lakeside, LLC (the “Joint Venture”).  Absent consent from a majority of other members, the Joint Venture’s operating agreement prohibited transfers of all components of a member’s interest, including voting rights.  The debtor’s plan established a liquidating trust to liquidate the debtor’s remaining assets, including its interest in the Joint Venture.  For well over a year, the Joint Venture permitted the liquidating trustee to participate in the management of the Joint Venture.  However, the non-debtor member of the Joint Venture eventually questioned whether the liquidating trust had full membership rights (including voting rights) to the Joint Venture or whether it had only an economic interest in the Joint Venture.

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The Intrusion of Section 506(b) in Foreclosure Proceedings

On June 23, 2014, the Fifth Circuit Court of Appeals weighed in on the applicability of section 506(b) to an oversecured creditor’s entitlement to payment for interest, fees and expenses in a case in which the secured creditor obtained relief from the automatic stay and executed a sale of its collateral under state law.  The case, Wells Fargo Bank, N.A. v. 804 Congress, LLC (In re 804 Congress, LLC), involved a single asset office building in Austin, Texas.  Wells Fargo Bank, N.A. (“Wells Fargo”) had financed the purchase of the building and held a real estate lien note (the “Note”) and a deed of trust that granted Wells Fargo a first-priority lien on the building.   Wells Fargo was owed $3,296,915, which included $87,000 in attorneys’ fees.

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Credit Bidding in Bankruptcy – Not So Sacrosanct

In devising loan-to-own lending strategies, the Delaware Bankruptcy Court’s decision in In re Fisker Auto. Holdings, Inc. serves as a warning shot to secured lenders that private sales on an  expedited basis are hard sells to a bankruptcy judge.

Fisker Automotive Holdings (“Fisker”) produced hybrid electric cars but ran into financial distress due to operating difficulties.  When the company’s senior secured loan from the U.S. Department of Energy in the amount of $168 million was purchased by Hybrid Tech Holdings, LLC (“Hybrid”) for $25 million, the company entered into negotiations over the terms of its sale to Hybrid.  With Hybrid’s support, Fisker filed a chapter 11 petition with the intent to sell substantially all of its assets to Hybrid.  Hybrid’s purchase offer was a credit bid of $75 million of the $168 million loan that it purchased just prior to the bankruptcy petition date.  Fisker planned to propose a liquidating chapter 11 plan after the sale closed.

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