Selected Business Provisions of the 2005 Bankruptcy Code Amendments Amended Provision Prior Provision Effect of Amendment REAL PROPERTY LEASES Cure of Nonmonetary Defaults Upon Assumption Section 365(b)(1)(A) of the Bankruptcy Code is Prior to the amendments, section 365(b)(1)(A) Under the amendment, a debtor may assume a real amended to provide that a debtor may assume an prohibited a trustee or debtor from assuming an property lease even if noncurable nonmonetary unexpired lease of real property without curing unexpired lease of real property if the debtor could defaults exist. The debtor, however, cannot be in defaults of nonmonetary obligations if it is not cure all defaults, even nonmonetary defaults default at or after the time of assumption and must impossible to cure such defaults by performing that were impossible to cure. For example, if a compensate the lessor for the actual economic loss nonmonetary acts. At the time of assumption, debtor was in default under a "going dark" sustained as a result of the default. however, the debtor will be required on a going- provision by closing a store prior to assumption, it forward basis to perform in accordance with the would be impossible for the debtor to go back in lease terms and will be required to compensate time and cure the default. Accordingly, the debtor the lessor for any pecuniary losses resulting from would not be able to assume the lease. past defaults (other than defaults under provisions imposing a penalty). Deadline for Assumption or Rejection of Unexpired Leases of Nonresidential Real Property An unexpired lease of nonresidential real property Prior to the amendments, deemed rejection Debtors will have a hard deadline of 210 days to under which the debtor is the lessee will be occurred if the lease was not assumed or rejected decide whether to assume or reject their real property deemed rejected pursuant to section 365(d)(4) of within 60 days after the petition date, unless the leases, except to the extent that landlords consent to the Bankruptcy Code if the debtor does not court extended the time to assume or reject prior a further extension. assume or reject the lease by the earlier of 120 to the expiration of the 60-day period. The days after the bankruptcy filing or the entry of an bankruptcy court had the authority, however, to order confirming a plan. The bankruptcy court grant unlimited extensions of time to assume or may extend the 120-day period prior to its reject leases up to the time of plan confirmation. expiration for 90 days, but any additional extension requires the prior written consent of the lessor. COI-1314685v8
Amended Provision Prior Provision Effect of Amendment Administrative Claims for Rejection of Assumed Real Property Leases New section 503(b)(7) of the Bankruptcy Code The Bankruptcy Code previously did not include Some commentators have suggested that this cap on specifically grants administrative expense priority any limit on the amount of an administrative administrative expense claims on account of the status to claims arising under nonresidential real expense claim that resulted from assuming and rejection of assumed leases was added in light of the property leases that the debtor assumes and then later rejecting a nonresidential real property lease. 210-day deadline imposed on debtors to assume or later rejects during the bankruptcy case. The Accordingly, some courts held that lessors had an reject real property leases, which in many cases will amount of this administrative expense claim uncapped administrative expense claim for require debtors to assume or reject leases prior to generally is limited to the amount of monetary rejection damages if a lease was rejected after it plan confirmation. obligations due, excluding those arising from or had been assumed. relating to a failure to operate or a penalty provision, for the two-year period following the later of the rejection date or the date of the turnover of the premises. The lessor's claim for the remaining amounts due under the lease after the two-year period will be a nonpriority claim subject to the section 502(b)(6) cap on lease claims. VENDOR CLAIMS Administrative Claims for Goods Received 20 Days Prior to Petition Date New section 503(b)(9) of the Bankruptcy Code None. This amendment benefits vendors making provides administrative expense priority for the shipments in the 20 days before the petition date by value of any goods received by the debtor within allowing administrative expense priority for the 20 days before the date of commencement of a value of the goods provided to the debtor. This case, so long as the goods have been sold to the provision, together with the expansion of debtor in the ordinary course of the debtor's reclamation rights (see below), will affect vendors' business. practices of shipping goods to debtors on the eve of bankruptcy and asserting reclamation claims. 2 COI-1314685v8
Amended Provision Prior Provision Effect of Amendment Expanded Reclamation Rights Vendors will be permitted under amended Vendors were required to make reclamation This amendment significantly expands the time section 546(c) of the Bankruptcy Code to reclaim demands for goods no later than 10 days after during which vendors may reclaim goods. It also no goods delivered to an insolvent debtor during the delivery or, if the 10-day period expired after the longer allows the debtor to deny a seller its 45 days prior to the petition date, subject to the bankruptcy filing, no later than 20 days after the reclamation right by providing the seller with an prior rights of a holder of a security interest in the debtor's receipt of such goods. In addition, a court administrative or secured claim. goods or proceeds thereof. A vendor must make a could deny a seller its reclamation right pursuant written reclamation demand no later than 45 days to section 546(c)(2) by giving the seller a claim after the debtor's receipt of the goods or, if the 45- that was entitled to administrative priority or day period expires after the bankruptcy filing, no secured by a lien. later than 20 days after the petition date. Expansion of Time to Perfect Liens For purposes of asserting a defense against Section 547(c)(3)(B) previously allowed a holder The length of time that holders of purchase money preference actions, a secured creditor is given of a purchase money security interest only 20 days security interests and other liens are provided to 30 days after the transfer pursuant to amended to perfect its security interest as a defense to perfect their liens without the act of perfection section 547(c)(3)(B) of the Bankruptcy Code to preference actions, and perfection was considered resulting in a preferential transfer has been perfect its purchase money security interest. The contemporaneous with a transfer pursuant to increased to 30 days after the transfer, from the 20- perfection of a lien (including but not limited to section 547(e)(2) only if completed within 10 days day period previously provided for purchase money purchase money security interests) is deemed to after the transfer. security interests and the 10-day period provided for have been contemporaneous with the underlying other types of liens. transfer for purposes of the "contemporaneous exchange for value" defense under section 547(e)(2) if the perfection occurs no later than 30 days after the transfer. 3 COI-1314685v8
Amended Provision Prior Provision Effect of Amendment ADEQUATE ASSURANCE FOR UTILITY SERVICES New section 366(c) of the Bankruptcy Code Utilities were previously entitled to receive New section 366(c) sets forth definitive guidance defines the "adequate assurance" that a debtor is adequate assurance of future payment in order to regarding what constitutes adequate assurance of required to provide to a utility in order to continue continue to provide services to debtors, but future payment for utilities and permits utilities to to receive service from the utility during the section 366 did not define or limit the concept of terminate service unilaterally if they do not accept bankruptcy. Specifically, adequate assurance is adequate assurance. Also, utilities generally were the form of adequate assurance they receive. The defined to mean: (a) a cash deposit; (b) a letter of required to seek relief from the automatic stay in amended statute provides utilities with greater credit; (c) a certificate of deposit; (d) a surety order to set off a prepetition deposit. leverage to demand cash deposits or similar bond; (e) a prepayment of utility consumption; or "adequate assurance" from debtors upon a (f) another form of security that is mutually bankruptcy filing. acceptable among the parties. The debtor's provision of "an administrative expense priority shall not constitute an assurance of payment." In addition, a utility may discontinue utility service if, during the 30-day period following the petition date, the utility does not consent to the form of adequate assurance provided by the debtor, although the debtor or another party may seek a determination by the bankruptcy court whether a particular assurance of payment is adequate. In making such determination, the court may not consider (a) the absence of a prepetition security deposit, (b) the debtor's timely prepetition payment history or (c) the availability of administrative expense priority. Finally, a utility may setoff its prepetition deposit without notice or order of the Court, notwithstanding any other provision of law. 4 COI-1314685v8
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