Source: http://www.thesecuredlender-digital.com/thesecuredlender/october_2015?pg=31
Timestamp: 2019-07-22 19:05:49
Document Index: 509833128

Matched Legal Cases: ['§ 524', '§ 1141', '§ 105', 'art. 3', '§ 1129', '§ 1123']

1079 (quoting Dow Corning, 280
F.3d at 658).
13. Seaside Engineering, 780 F.3d at
1079 (internal citations and quotations omitted).
14. Id. at 1079-81.
15. For a critique of the court’s conclu-
sion that the debtor actually met
the Dow Corning test, see Eric W.
Anderson and Jay Basham, Please Release Me, Let Me Go: Eleventh Circuit Embraces Third-Party Release Standards, 34-JUN AM. BANKR. INST.
J. 20, 74 (2015).
16. 11 U.S.C. § 524(e). One of the effects of plan confirmation is discharge of the debtor’s pre-bankruptcy debt.
11 U.S.C. § 1141(d)( 1).
17. 11 U.S.C. § 105(a)
18. Seaside Engineering, 780 F.3d at
1076-77.
19. Seaside Engineering, 780 F.3d at
20. See, e.g., In re FFS Data, Inc., 509 B.R.
403, 408-09 (Bankr. S.D. Fla. 2014).
21. See Ryan M. Murphy, Injunctive Relief for Nondebtor Guarantors,
22 Norton J. Bankr. L. & Prac. 4 art. 3
(2013) (citing Greer & Moss, Guaran-ties in Bankruptcy: A Primer, 16 Norton J. Bankr. L. & Prac. 309 (2007)).
scenario—a creditor may be permanently enjoined from collecting from a guarantor-principal of the debtor because the debtor’s plan includes a release of liability. Indeed, some courts have already reached that conclusion in reliance on Dow Corning.
Such a decision skews the front-end underwriting risk analysis for secured lenders who anticipate recovering from the guarantor-principals in the event recovery from the entity itself proves impossible. 21
Mitigating this risk, however, is possible. Because the Dow Corning factors rely heavily on identity of interest between the debtor and the third party and the essentiality of the release to continued operation of the business, extending the release to other affiliated entities or to passive investors may require a more flexible interpretation than many bankruptcy courts will allow. As a result, cross-collateralizing and cross-defaulting bankruptcy-remote special purpose entities can provide additional remedies across an entire lending relationship that may survive the Dow Corning test if any single entity declares bankruptcy. Similarly, additional guarantees, even limited guarantees, from passive investors (who are not involved in management, like the principals of Seaside were) may provide an additional avenue of recovery that a bankruptcy court cannot or would not prevent. Still, because all loan approvals must be done on a case-by-case basis and are heavily dependent on state-specific laws, we encourage you to talk with counsel before deciding on how to proceed. TSL
Ron C. Bingham II is a shareholder in
the Atlanta office of Baker Donelson. He
has represented financial institutions,
asset-based lenders, investment funds and
CMBS special servicers for more than 15
years. He advises clients regarding com-
mercial workouts, receiverships, bank-
ruptcy and commercial litigation matters in
state and federal courts. He also provides
insolvency-related advice in litigation and
transactional contexts and participates in
out-of-court restructurings on behalf of a
variety of parties. He can be reached at
rbingham@bakerdonelson.com.
Dan Ferretti is an associate attorney in the Corporate Restructuring & Bankruptcy Group at Baker Donelson. Based in the Houston office, Ferretti focuses his practice on representing secured lenders in all aspects of commercial lending, handling originations, restructures, workouts, loan sales, foreclosures and deeds-in-lieu, REO sales, receiverships, and bankruptcies involving commercial loans secured by real and personal property. He can be reached at dferretti@bakerdonelson.com.
1. SE Property Holdings, LLC v. Seaside Engineering & Surveying, Inc. (In re Seaside Engineering & Surveying, Inc.), 780 F.3d 1070 (11th Cir. 2015).
2. Munford v. Munford, Inc. (In re Munford, Inc.), 97 F.3d 449 (11th Cir. 1996).
3. Seaside Engineering, 780 F.3d at 1077 (noting that the facts of Seaside differ from the facts in Munford).
4. Id. at 1078-79. Other circuits allowing such releases in the context of a plan include the Second, Third, Fourth, Sixth and Seventh, with the First and D.C. Circuits in agreement that bankruptcy courts have authority to issue non-consensual, non-debtor releases generally; the Fifth, Ninth and Tenth Circuits do not allow such releases. Id. at 1077-
78. The U.S. Supreme Court has not addressed the issue, though the losing party in Seaside Engineering did recently file a petition asking the
Supreme Court to review the case. 5. See 11 U.S.C. § 1129.
6. See 11 U.S.C. § 1123.
7. Seaside Engineering, 780 F.3d at 1076.
8. Id. at 1074-75.
10. Id. at 1076-77.
11. 280 F.3d 648, 658 (6th Cir. 2002). 12. Seaside Engineering, 780 F.3d at