IN THE MATTER OF SAYBROOK MANUFACTURING CO., INC
963 F.2d 1490 (1992)
NATURE OF THE CASE: Shapiro (P), unsecured creditors, appealed from an order dismissing
their objections to of a cross-collateralization financing agreement.
FACTS: Saybrook et al (D) initiated Chapter 11. D filed a motion for the use of cash
collateral and for authorization to incur secured debt. The court entered an emergency
financing order. D owed Manufacturers Hanover (D1) approximately $34 million. The collateral
for this debt was less than $ 10 million. Pursuant to the order, D1 agreed to lend D an
additional $3 million to facilitate their reorganization. In exchange, D1 received a
security interest in all of the debtors' property -- both property owned prior to filing the
bankruptcy petition and that which was acquired subsequently. This interest protected the $3
million but also secured the $34 million pre-petition debt. D1's pre-petition debt became
fully secured by all of the D's assets. P challenged the cross-collateralization of D1's
pre-petition debt and not the propriety of collateralizing the post-petition debt. The
bankruptcy court overruled the objections. The district court dismissed P's appeal as moot
rejecting the argument that cross-collateralization is contrary to the Code. P appealed.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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