Delta financial liquidating trust
Four months afterward, CDI and six of its affiliates, including TVC(collectively, the "debtors"), filed for chapter 11 protection in Delaware.ICX expressed concern about TVC's ability to comply with the distribution agreement.A creditor's ability in a bankruptcy case to exercise rights that it has under applicable law to set off an obligation it owes to the debtor against amounts owed by the debtor to it, thereby converting its unsecured claim to a secured claim to the extent of the setoff, is an important entitlement.
By its terms, section 553 is limited to mutual obligations arising prior to a bankruptcy filing. In other words, according to the court, if a setoff right does not exist under nonbankruptcy law as of the bankruptcy petition date, no setoff right is preserved or created by section 553.The gist of the criticism is that: (i) sections 365(g) and 502(g) do not create contract rejection damage claims — such claims arise when a contract is executed, although they are "contingent" or "unmatured" until the contract is breached (such as upon rejection in a bankruptcy case); and (ii) section 553 does not require a creditor to have a right of setoff that could be exercised under state law at the time the bankruptcy case is commenced — if a creditor on the petition date holds an unmatured or contingent claim that later matures or becomes fixed such that the creditor has a right of setoff under state law, section 553 should apply to recognize the right.The bankruptcy court in also rejected the Delta court's approach. ("CDI"), the parent of the cable television products distributor TVC Communications Inc. ("USE"), entered into an asset purchase agreement with USE Acquisition, LLC(now referred to as "ICX"). District Court for the District of Oregon dismissed a borrower's lawsuit against MERSCORP Holdings, Inc., Delta Financial Liquidating Trust, Ocwen Loan Servicing, and HSBC Banks.In the plaintiff's complaint, the borrower alleged that none of the defendants held an interest in the his property because none of the defendants recorded the transfer of his promissory note in county records when his mortgage was sold by the original lender.
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Due to the size of the cure payment necessary to satisfy TVC's anticipated obligations under the distribution agreement (approximately $1.3 million), the debtors decided to reject the agreement.