Fair Warning: Amendments or Supplements to Language Often Found in Amended and Restated Loan Agreements May be Required

Truman Bidwell
October 27, 2016

Recently, the U.S. Court of Appeals for the Sixth Circuit issued an opinion in the Chapter 7 bankruptcy case Bash v. Textron Financial Corporation (In re Fair Finance Company), which has important effect on a number of legal issues, including whether a trustee in bankruptcy can bring a conspiracy claim on behalf of a bankrupt entity that participates in a fraud (creating a split with the Second Circuit); and whether, for the purpose of a fraudulent conveyance, the statute of limitations runs from the time of the transfer or the time when the fraud occurred or could reasonably have been discovered. However, the blockbuster in the case is that the Court held that an amended and restated loan agreement, which contains language commonly used by many banks, may actually have been a novation of the original agreement resulting in the loss of the lender’s security interest. This Advisory summarizes only that aspect of the holding which considered the question of whether the amended and restated loan agreement constituted a novation.

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