  |
  |
  |
    
  
   |
 | |||
|
|
|
|
| |||
Reasoning: The language of the bankruptcy code does not provide or suggest that creditors have a right "to dispute avoidance actions on the basis of previously settled claims." Additionally, the bankruptcy code "does not affirmatively require a party to raise such objections during the claimallowance process." The court noted that Delaware bankruptcy courts have split on this issue, but, ultimately, the court agreed with the line of cases that said that to the extent a creditor benefits from a trustee's failure to raise § 502(d) during the claims allowance process does not mean that creditor is entitled to a windfall by reading a § 547 waiver onto § 502(d). Lastly, the court noted that, practically, in many chapter 11 cases, the plan confirmation process turns on the resolution of a large number of claims long before any preference analysis is performed. Moreover, there is a need for an ongoing working relationship between the debtor and creditors, which would be severely hindered if the debtor or trustee were required to engage in preference actions in conjunction with settling claims.
Facts: GE Capital Corp. ("GECC") and Future Media Productions, Inc. (the "Debtor") were parties to a prepetition loan agreement under which, in the event of default, the Debtor paid a default rate of interest. The Debtor defaulted pre-petition and then declared bankruptcy. GECC's loan was secured by substantially all of the Debtor's assets. Post-petition, GECC agreed to the Debtor's use of cash collateral pursuant to a stipulation with the Debtor in which the Debtor conceded that it owed GECC $5.4 million, including interest and principal, as GECC was oversecured. Under the stipulation, the Debtor was to sell its assets at auction. Ultimately, the Committee of Unsecured Creditors objected to GECC receiving more than pre-default interest.
Issues: Whether, under the rubric of In re Entz-White Lumber and Supply, Inc., 850 F.2d 1338 (9th Cir. 1988), which held that an oversecured creditor was not entitled to default interest rates where its claim was cured and paid in full under the terms of a Chapter 11 plan, an oversecured creditor should receive pre-default interest or default interest rate when it is being paid in full after a § 363 sale.
Holding: Bankruptcy court's holding is remanded as to GECC's interest and whether GECC may receive attorneys' fees, costs and expenses under § 506(c).
Rule: The Entz-White rule does not apply to § 363. "A bankruptcy court should apply a presumption of allowability for the contracted for default rate, 'provided that the rate is not unenforceable under applicable nonbankruptcy law.'"
Reasoning: When being paid from the proceeds of a § 363 sale, an oversecured creditor is not being cured.
Facts: In a previous (recent) related opinion, the Fifth Circuit ruled that the Wooleys' secured claims were equitably subordinated in error by the bankruptcy court and the Fifth Circuit reinstated the claims. However, during the pendency of the equitable subordination appeal, the plan of reorganization partially protected the Wooleys' interests and made a distribution to them in the amount of $2,867,600. The plan also provided for the remainder of the Wooleys' claims to be held in a reserve fund (the "Fund"). The Fund contained $500,000 and the plan allowed the Plan Administrator to seek the approval of the bankruptcy court to disburse the funds for purposes other than to pay the Wooleys. Also during the pendency of the equitable mootness litigation, the
