Southern pacific funding corporation liquidating trust
(petroleum products and construction of service stations). Beck has also represented secured and unsecured creditors and creditors’ committees.
Under the Indenture, the debtor's obligation is to make holders of Senior Indebtedness whole before paying holders of subordinated Notes.
The district court had jurisdiction over Spieker's appeal pursuant to 28 U.
Sections 12.1-12.12 of the Indenture are its subordination provisions. Like section 12.2, section 12.3 further provides that if any payments are made on the Notes before the Senior Indebtedness is paid in full, those payments must be turned over to the Senior Indebtedness until the Senior Indebtedness is paid in full. That is, the Plan provides for the payment of double dividends to Senior Indebtedness-it gets its own share plus the share to which the holders of the Notes would otherwise be entitled. That provision prohibits the termination or modification of an executory contract, or any right or obligation thereunder, solely on the basis of a provision of the contract that is conditioned on insolvency of the debtor. Standard of Review The district court's decision on an appeal from a bankruptcy court is reviewed de novo. County of Los Angeles (In re Gruntz), 202 F.3d 1074, 1084 n. This court therefore applies the same standard of review applied by the district court. Chang (In re Chang), 163 F.3d 1138, 1140 (9th Cir.1998). Discussion Section 365 of the Bankruptcy Code deals generally with executory contracts and unexpired leases. What section 12.3 does require is that SPFC pay directly to the holders of Senior Indebtedness any payments to which the holders of the Notes would otherwise be entitled. It further provides that, notwithstanding the provisions of section 12.3, in the event that payments are made to the holders of the Notes, such payment shall be “held in trust” for the benefit of the holders of the Senior Indebtedness.
Background In 1996, SPFC entered into an indenture agreement (the “Indenture”) regarding the issuance by SPFC of “convertible subordinated notes” (the “Notes”) in an aggregate principal amount of approximately million. But section 12.3 contains an additional provision that section 12.2 lacks: It provides that in the event of dissolution, liquidation, reorganization, or distribution of assets, any payments to which the holders of the Notes would be entitled, were it not for the subordination provisions, must be paid to the Senior Indebtedness, in addition to any payment to which the Senior Indebtedness is already entitled, until the Senior Indebtedness is paid in full. The provisions of the Plan, as confirmed by the bankruptcy court, mirror the provisions of section 12.3 of the Indenture. It held that enforcement of section 12.3 does not violate § 365(e)(1), because section 12.3 “does nothing to alter the rights or obligations of the debtor.”II. Spieker misapprehends the effect of section 12.3 in claiming that under it, “SPFC is required to make distributions to the Subordinated Noteholders, and they are required to turn those monies over to the holders of Senior Indebtedness.” Section 12.3 does not require SPFC to make any payments to the holders of the Notes; in fact, section 12.3 prohibits any payment to the holders of the Notes until Senior Indebtedness has been paid in full. Actually, § 365(e)(1) applies to clauses conditioned on “(A) the insolvency or financial condition of the debtor at any time before the closing of the case; (B) the commencement of a case under [the Bankruptcy Code]; or (C) the appointment of or taking possession by a trustee in a case under [the Bankruptcy Code] or a custodian before such commencement.” 11 U.
That is, the Senior Indebtedness receives a “double dividend” in the section 12.3 context-it gets its share plus any share to which the holders of the Notes would otherwise be entitled. The bankruptcy court approved the Plan and rejected Spieker's argument, apparently on the grounds that: (1) under 11 U. On appeal, the district court rejected Spieker's argument as well, but for a different reason. “[A] contract is executory if the obligations of both parties are so unperformed that the failure of either party to complete performance would constitute a material breach and thus excuse the performance of the other.” Unsecured Creditors' Comm. For convenience, we continue to refer to Appellant as Spieker.2. In addition, we are not unmindful of the fact that more than .8 trillion in debt securities and bank loans have been extended in reliance on the type of subordination agreement that Spieker asks us to invalidate.
He has represented Chapter 7 and Chapter 11 trustees in numerous cases, including Overseas Corporation and related cases (the Sonesta Villa Resort in Orlando, Florida); Hart Industries, Inc.