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,” 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.” 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.
To recap the Motors Liquidation/General Motors case, in September 2008, the lender and the borrower entered into a loan repayment and release, which included the termination of certain UCC-1 financing statements in favor of the lender. Both the lender and the borrower retained sophisticated counsel to document the transaction. The errant UCC-3 termination statement was drafted by borrower’s counsel, and it referenced three