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Bankruptcy Court Reluctantly Allows Creditor To Shuck “Lil’ Sweet Pea” Accounts

Any first-year law student could attest that understanding what the law is can be a difficult task, in part because the law is not always applied consistently by courts.  This problem gives rise to a maxim law professors often invoke (sometimes citing Justice Oliver Wendell Holmes, a proponent of this maxim) when questioned about the law’s occasional incoherence: “hard cases make bad law.”[1]  The idea is that courts are sometimes tempted to skirt the proper application of the law when the result seems harsh or unfair.  Typically, this happens when a court is faced with a particularly sympathetic party who happens to be on the wrong side of the dispute.  Although the court’s desire to avoid a harsh outcome is laudable, if the court allows this desire to distort its interpretation of the law it allows other (often less sympathetic) parties to avoid proper application of the law

From Across the Pond – An Unsecured Creditor, Even with Contractual Rights Against the Secured Creditor, Cannot Enforce Common Law Duties on the Manner of Enforcement Against the Collateral

April 6, 2016


Editor’s Note:  Our good London colleague Ed Marlow recently published this as a Bryan Cave client advisory.  When we Yanks saw it, we found it fascinating, not only based on the arcane facts, but also to realize that British tribunals struggle with the same things we do here in the States – whether (or how) to protect junior creditors which allege that a secured creditor did not maximize value in disposing of the collateral.  Different countries, same insolvency challenges!  Our sincere thanks to Ed for this analysis; for a introduction to how Bryan Cave can assist with your corporate trust matters in England, France, Germany, or other EU countries, please click here.

Summary and Holding:

Including an unsecured creditor in an agreed payments waterfall does not by itself confer on that unsecured creditor the benefit of a mortgagee’s usual duties on enforcement

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