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Note: U.S. Bank (Indenture Trustee) drew on Citibank National Association's (Issuer's) standby letter of credit in the amount of USD 34,103,332. The LC was issued to enhance Qimonda North American Corp.'s and Qimonda Richmond, LLC's (Debtors'/Applicants') obligations to pay bondholders. Debtors/Applicants had agreed to reimburse Issuer in full before or immediately after the Indenture Trustee drew on the LC. However, shortly after Issuer honored and debited USD 33,715,873 from Debtors'/Applicants' account, Debtors/Applicants filed for bankruptcy under US Bankruptcy Code Chapter 11 (reorganization). On behalf of the Beneficiary Estate, Bankruptcy Trustee sued Issuer seeking to avoid and recover the debited funds as fraudulent and preferential transfers. Issuer moved to dismiss for failure to state a claim for relief. The United States Bankruptcy Court for the District of Delaware, Walrath, J., denied the motion.

The Judge ruled that Issuer had failed to establish that Debtors'/Applicants' deposit and the subsequent debit were settlement payments (defined by the Bankruptcy Code at 11 U.S.C. § 741(8) as "a preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, or any other similar payment commonly used in the securities trade") that were protected by US Bankruptcy Code § 546(e). The Judge then ruled that Issuer had failed to establish itself as a fully-secured creditor, stating that "[Issuer]'s secured status cannot be addressed at this stage." Despite Issuer's arguments, the Judge ruled that the complaint adequately alleged that the funds transferred were property of Debtors/Applicants. Finally, the Judge noted that the issue of whether Issuer had made fraudulent transfers cannot be addressed because whether Debtors/Applicants received a "reasonably equivalent value" in return required a factual determination that could not be made on a motion to dismiss.

[JEB/gw/mlm]

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