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Ninth Circuit Decides Issue of First Impression, Protects Insider Guarantor from Preference Liability

In a case of first impression for any district or appellate court, the Court of Appeals for the Ninth Circuit (the “Court”) held that “when an insider guarantor has a bona fide basis to waive his indemnification rights against the debtor in bankruptcy and takes no subsequent actions that would negate the economic impact of that waiver, he is absolved of any preference liability to which he might otherwise have been subjected.” As discussed below, the case provides a list of factors for courts to consider in determining whether an indemnification waiver should be considered valid for purposes of exempting an insider guarantor’s preference liability.

In Stahl v. Simon (In re Adamson Apparel, Inc.), the Court decided whether a personal guarantor of corporate debt may be liable for preferences where that guarantor is an insider of the debtor but validly waived his rights to indemnification against the debtor. The debtor

A Look At Committee v. JP Morgan

By now, every secured lender and attorney that represents secured lenders should be familiar with the opinion from the Second Circuit Court of Appeals styled Official Committee of Unsecured Creditors of Motors Liquidation Company v. JP Morgan Chase Bank, N.A. (In Re Motors Liquidation Co.) Covered in articles with titles such as “JP Morgan Loses $1.5 Billion Feud with Creditors of GM Forerunner,”[1] the opinion sent a shock wave through the lending community. As our finance colleagues have rightly noted, this case is a stark reminder that best practices require transactional attorneys to “measure twice, cut once.”[2] However, the case also offers important lessons for workout and restructuring professionals, who are often in the position to correct documentation mistakes before a subsequent bankruptcy filing makes the mistakes devastatingly permanent.

Factual Background

To recap the Motors Liquidation/General Motors case, in September 2008, the lender and

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