A professional seeking to represent a debtor under Bankruptcy Code section 327(a) must not hold an interest adverse to the bankruptcy estate and must be disinterested. A debtor’s insiders often cannot satisfy these tests. The Bankruptcy Code defines “insider” to include...

A bankruptcy judge has ruled that a debtor can satisfy the Bankruptcy Code’s rehabilitation standard by selling its assets as a going concern and thereby avoid conversion from chapter 11 to chapter 7. In the same decision, the court denied...

The Federal Arbitration Act (FAA) was enacted to require courts to enforce parties’ agreements to arbitrate disputes. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985). More recently, the Supreme Court has said that “[t]he federal policy is about...

A bankruptcy trustee can recover an avoided fraudulent transfer from both the initial transferee and subsequent transferees. But can a trustee recover from a subsequent transferee if the initial transferee isn’t named as a party to the case? A bankruptcy...

A recent decision by Bankruptcy Judge Brendan Shannon was peppered with some harsh words for a defendant in an adversary proceeding. Judge Shannon said the party’s “failure to perform basic discovery responses and participation in litigation … has been breathtaking....

Here at the Bankruptcy Update, we frequently write on the intersection of insolvency and fraud, including collapsed Ponzi schemes. Another Ponzi-scheme related opinion recently issued from the United States Bankruptcy Court for the Southern District of New York. In In re:...

Federal District Judge Randy Crane recently issued a written decision in Wesco Aircraft Holdings, Inc. v. SSD Invs. Ltd.,[1] validating Wesco’s 2022 uptier exchange transactions and reversing a ruling by Bankruptcy Judge Marvin Isgur. Background: The 2022 Uptier Transactions An uptier transaction...

Section 547 of the Bankruptcy Code authorizes a trustee (or another appropriate party) to avoid, or clawback, so-called “preferential” transfers.  A transfer qualifies as a preference if it was made to or for the benefit of a creditor within 90...

These are tough times for the bourbon industry. Sales are down and inventories are up. The bourbon trail has led some distillers into bankruptcy: LMD Holdings, the parent company of Luca Mariano Distillery; Stoli Group USA and its Kentucky Owl brand;...

In 2020, the Supreme Court ruled that a bankruptcy court’s decision to lift the automatic stay of pending litigation imposed by the Bankruptcy Code is a final, appealable order. But what if a bankruptcy court lifts the stay and later...

A bankruptcy court in New Jersey recently granted a debtor’s motion to dismiss the counterclaims of two creditors who purchased a percentage of the debtor’s future receivables prepetition. The court rejected the creditors’ argument that “prior to the Petition Date,...

By now, most lawyers should know the dangers of relying on generative AI for legal research. A big risk is that AI will generate fake case citations and quotations. Failure to check and verify the citations and quotations can create...

Financial uncertainty has spread across the globe.  The U.S. disrupted international commerce by repeatedly threatening to impose sweeping tariffs on dozens of countries, including some of the nation’s closest trading partners and allies.  In response, some nations announced their own...

Joshua Jordan was the CEO of Prehired LLC (“Prehired”), a “members-only workforce accelerator.”  In December 2023, Jordan logged into Prehired’s Wells Fargo bank account online.  He transferred $74,000 to the account of another entity he controlled and subsequently spent the...

The filing of an appeal in federal court generally divests the lower court of jurisdiction.  This rule of appellate jurisdiction applies both to appeals from a district court to a court of appeals and from a bankruptcy court to a...

We have previously blogged about the Tenth Circuit’s decision in United States v. Miller, a case that concerns the relationship between section 544(b)(1) and section 106(a)(1) of the Bankruptcy Code.  As we explained in our prior post, section 544(b)(1) enables...

This article originally appeared in the New York Law Journal. This article discusses the circumstances that may necessitate the appointment of an examiner or trustee in a chapter 11 case. The article provides an overview of important tasks that an examiner or...

A federal district judge recently affirmed a bankruptcy judge’s ruling that a non-creditor was entitled to actual notice of an injunction that would bar the non-creditor from suing the debtors’ insurance carriers.  In re Boy Scouts of America and Delaware...

The U.S. bankruptcy court in New York recently issued an important decision under Chapter 15 of the U.S. Bankruptcy Code concerning the restructuring of U.S. law governed debt in a foreign insolvency proceeding. In re Mega Newco Limited, Case No....

The U.S. bankruptcy system is generally an efficient mechanism for companies and individuals seeking to restructure their debts and obtain a fresh start.  However, the effectiveness of the bankruptcy system relies on integrity and fairness—both of which may be undermined...

The Barton doctrine provides that a court-appointed receiver cannot be sued absent “leave of court by which he was appointed.”  Barton v. Barbour, 104 U.S. 126, 127 (1881).   “An action against a receiver without court permission, the [Barton] Court reasoned,...

The Bankruptcy Code provides immediate and automatic protection to a debtor upon the filing of a bankruptcy petition, staying legal claims and debt collection efforts against a debtor—subject to certain exceptions.  See 11 U.S.C. § 362.  Because of the importance...

This article originally appeared in The Bankruptcy Strategist. At the motion to dismiss stage, courts usually won't consider affirmative defenses. This issue arose recently in a preferential transfer case, where a defendant sought to dismiss a complaint by arguing it was a...

Section 548 of the bankruptcy code authorizes a trustee, debtor, or other appropriate party to avoid actual and constructive fraudulent transfers that occurred prepetition.  In order to prove that a transfer was an actual fraudulent transfer, the trustee (or another...

When an involuntary bankruptcy petition is dismissed, section 303(i) of the Bankruptcy Code permits a debtor to seek reasonable attorneys’ fees and costs from the petitioners, and, if the petition was filed in bad faith, damages proximately caused by the...

A recent appellate decision addresses the availability of damages when an involuntary bankruptcy petition is filed in bad faith.  See Stursberg v. Morrison Sund PLLC, No. 23-1186, 2024 U.S. App. LEXIS 20286 (8th Cir. Aug. 13, 2024). The decision discusses both the interplay between Bankruptcy...

Under federal law, a debtor may be criminally prosecuted for various kinds of misconduct in connection with a bankruptcy case, including concealing assets, falsifying information, embezzlement, or bribery.  See 18 U.S.C. §§ 152, 157.  The U.S. Trustee, which serves as...

In Harrington v. Purdue Pharma L.P., 144 S. Ct. 2071 (2024) (“Purdue”), the Supreme Court held that the Bankruptcy Code does not authorize nonconsensual releases of nondebtors as part of a chapter 11 plan.  The Court narrowly read the Code’s...

This article originally appeared in The Bankruptcy Strategist. To file bankruptcy in the U.S., a debtor must reside in, have a domicile or a place of business in, or have property in the United States. 11 U.S.C. §109(a). In cross border Chapter...

At a hearing in mid-March, the Delaware bankruptcy court held Camshaft Capital Fund, LP, Camshaft Capital Advisors, LLC, Camshaft Capital Management (collectively, “Camshaft”) and William Cameron Morton, principal of Camshaft, in civil contempt.  The case is noteworthy because the court...

In 2019, Congress enacted the Small Business Reorganization Act, which created subchapter V within chapter 11 of the Bankruptcy Code.  Congress’ intent was to create a more cost-efficient and streamlined restructuring process for small businesses by modifying certain provisions of...

We have previously blogged about the section 546(e) defense to a trustee’s avoidance powers under the Bankruptcy Code.  A trustee has broad powers to set aside certain transfers made by debtors before bankruptcy.  See 11 U.S.C. §§ 544, 547, 548. ...

Publicly, Diamond Finance Co. (“Diamond”) provided car loans to individuals with less-than-stellar credit.  While Diamond did have “some actual business,” its purpose “quickly became a front to lure unsuspecting investors.”  Like most Ponzi schemes, Diamond eventually collapsed; an involuntary chapter...

The Fifth Circuit recently ruled that a debtor can sell a preferential transfer action under Bankruptcy Code section 363 to a purchaser that is not a representative of the bankruptcy estate.  Briar Cap. Working Fund Cap., L.L.C. v. Remmert (In...

Judge Jacqueline P. Cox recently found that three Illinois attorneys violated their ethical obligations by failing to return their client’s phone calls.  She thus ordered the attorneys to return half of their already-court-approved, and paid, flat fee. In In re: Dennis...

In 2023, the economies of some nations stagnated, but developing economies particularly struggled.  As a new year commences, some of these countries will continue their efforts at restructuring their debts—a process that has been going on for years. Back in...

We have previously blogged about the section 546(e) defense to a trustee’s avoidance powers under the Bankruptcy Code.  A trustee has broad powers to set aside certain transfers made by debtors before bankruptcy.  See 11 U.S.C. §§ 544, 547, 548. ...

This article originally appeared on Law360. The uptick in bankruptcy cases will mean more work for insolvency professionals who specialize in asset tracing. Some of the most interesting work will arise in cases where companies engaged in significant fraud. Each bankruptcy cycle has...

Federal law assigns to U.S. district courts original jurisdiction over all cases under Title 11 (the Bankruptcy Code) and all civil proceedings arising under Title 11 or arising in or relating to Title 11.  See 28 U.S.C. § 1334(a), (b). ...

The United States Trustee Program is responsible for the efficient administration of bankruptcy cases throughout most of the country.  Since 1986, the Trustee Program has covered all states except North Carolina and Alabama, where an Administrator Program oversees bankruptcy filings...

An appeals court ruled recently that chapter 5 avoidance actions are property of a debtor’s bankruptcy estate that can be sold in section 363 sales. In re Simply Essentials, LLC, No. 22-2011, 2023 U.S. App. LEXIS 21814 (8th Cir. Aug....

Section 544(b)(1) of the Bankruptcy Code enables a trustee to step into the shoes of a creditor and avoid a transfer “of an interest of the debtor in property” that an unsecured creditor could avoid under applicable state law.  See...