Sept. 22, 2020 — Maurice Wutscher attorney Kevin Hudspeth has written an article for the American Bar Association’s news magazine Business Law Today in which he discusses the likely increase of Chapter 11 bankruptcy filings by office parks and office building owners due to the COVID-19 pandemic, along with a likely rise in litigation over the proper treatment of rents from mortgaged property in business reorganizations.
In “In God We Trust, All Others Pay Cash Collateral: Can Chapter 11 Bankruptcy Debtors Use Assigned Rents for Business Reorganizations Under Ohio Law?,” Mr. Hudspeth writes, “As more employers discover that employees can adequately perform their duties remotely, they may reevaluate the need for expensive office space, which could lead to increased Chapter 11 filings by the owners of office buildings, office parks, and single-asset real estate debtors.”
“Against this backdrop, bankruptcy courts can expect increased litigation over the use of post-petition rents as cash collateral to pay administrative expenses and fund business reorganizations plans. … A common dispute in Chapter 11 bankruptcies centers around whether the assignment-of-rents clause transfers immediate ownership of rents to the lender or merely gives the lender a security interest in the rents. State law controls the issue.”