The United States Bankruptcy Court for the Southern District of New York has announced proposed changes to its Local Bankruptcy Rules in light of the recent amendments to the Federal Rules of Bankruptcy Procedure that took effect on December 1, 2007. Many of the largest business bankruptcy cases are filed in the Southern District of New York, which includes Manhattan, making these proposed amendments to the Local Bankruptcy Rules of particular interest.
- A redline version showing the proposed local rule changes is available by clicking on the link in this sentence.
- For more on the national bankruptcy rule amendments that prompted these proposed local rule changes, you can read this article, entitled "Important Changes To Bankruptcy Rules Take Effect," or view the redlined national bankruptcy rule changes directly, by clicking on their respective links in this sentence.
Cash Collateral And DIP Financing Disclosures. The most significant proposed changes for Chapter 11 bankruptcy cases address cash collateral and DIP financing motions and, if adopted, the local rule amendments would supplement the disclosures required by amended Federal Rule of Bankruptcy Procedure 4001. Proposed Local Bankruptcy Rule 4001-2 would require at least fifteen material provisions to be disclosed in cash collateral and DIP financing motions. These include the following:
- the amount of cash to be used or borrowed, including any borrowing base formula and availability;
- material conditions to closing, including budget provisions;
- pricing and economic terms, including various fees;
- any effect on existing liens;
- any carve-outs from liens or superpriorities;
- any cross-collateralization;
- any roll-up provisions;
- any provisions that would materially limit the Court’s power or discretion or the fiduciary duties of a trustee, debtor in possession, or committee;
- any limitation on the lender’s obligation to fund activities of a trustee, debtor in possession, or committee;
- termination or default provisions;
- any change of control provisions;
- any deadline for sale of property;
- any prepayment penalty or other restriction on repayment;
- terms governing joint liability of debtors; and
- any funding of non-debtor affiliates.
Additional Proposed Financing Changes. Other provisions would require (1) disclosure regarding efforts to obtain financing, (2) adequate notice after an event of default and before a lender could exercise remedies, (3) disclosure regarding carve-outs and allocations of carve-outs, (4) investigation periods for committees, and (5) appearances at preliminary and final hearings. In addition, the proposed local rule would mandate certain provisions in proposed orders, including a reservation of the Court’s right to unwind roll-ups if a successful challenge is later made.
Other Proposed Amendments. The remaining proposed amendments are mainly technical. They would repeal local rules that have become unnecessary, drop the requirement that attorneys use an identifier that includes the last four digits of their social security number, conform attorney signature rules to current practice, and dispense with the need for a separate memorandum of law if a discussion of the law is included in the motion itself.
Opportunity For Comments. The Bankruptcy Court has not yet promulgated these local rule amendments and it is accepting comments on the proposed changes until April 23, 2008. Information on how to submit comments is available on the Court’s website at the Local Rule page.