Most bankruptcy courts have altered their practices and procedures in light of COVID-19. Below is a summary of some of the changes to practices and procedures in the United States Bankruptcy Courts for the Southern District of New York, the Eastern District of New York, and the District of Delaware. Given the fluidity of the situation and the frequency of COVID-19-related updates, please also consult the relevant court’s website.
Last February, we blogged about the Third Circuit’s decision in In re Energy Future Holdings Corp, No. 19-1430, 2020 U.S. App. LEXIS 4947 (Feb. 18, 2020). The Third Circuit approved a process for resolving asbestos claims in which a bar date was imposed on filing the claims, but late claimants who were unaware of their asbestos claims would be allowed to have the bar date excused through Bankruptcy Rule 3003(c)(3). (A bar date is a date set by the court by which all claims against the debtor must be filed. Rule 3003(c)(3) permits such time for filing to be extended “for cause shown,” and has been held, based on Rule 9006(b), to permit late filing upon a showing of “excusable neglect” by a claimant.) In a recent decision, the United States Bankruptcy Court for the District of Delaware rejected an effort by two late claimants to make use of this process, reasoning that the claimants had failed to meet Rule 3003(c)(3)’s “excusable neglect” standard because they had participated in the bankruptcy case for years without seeking to file claims.
This post concerns computation of time under Bankruptcy Rule 9006. The specific issue addressed is whether a bankruptcy court — when computing a filing deadline — should count a day when its clerk’s office is closed, even if the electronic filing system is available. In a recent case, a federal district judge explained why in his view the day shouldn’t be counted. Labbadia v. Martin (In re Martin), No. 3:20-cv-939, 2020 WL 5300932, (SRU) (D. Conn. Sept. 4, 2020).
“Unfair discrimination is rough justice. It exemplifies the Code’s tendency to replace stringent requirements with more flexible tests that increase the likelihood that a plan can be negotiated and confirmed,” announced Judge Thomas Ambro of the United States Court of Appeals for the Third Circuit on August 26, 2020. Though limited to an explication of Section 1129(b)(1)’s prohibition on unfair discrimination against a class of dissenting creditors, Judge Ambro’s “rough justice” remark will echo in all areas of bankruptcy law among practitioners who prioritize pragmatism over perfectionism.
I don’t know if Congress foresaw, when it enacted new Subchapter V of Chapter 11 of the Code in the Small Business Reorganization Act of 2019 (“SBRA”), that debtors in pending cases would seek to convert or redesignate their cases as Subchapter V cases when SBRA became effective on February 19, 2020, but it was foreseeable. The benefits and advantages of Subchapter V to the debtors entitled to use it were certain to attract not just new filings but pending cases, especially cases commenced during SBRA’s long “180-day runway to effectiveness.”
Proposed Amendments to the CARES Act Would Expand Access to PPP Loans to Small Businesses in Chapter 11
The paycheck protection program (“PPP”) has been one of the most popular aspects of the CARES Act (i.e., the initial legislation responding to the COVID-19 pandemic). Yet, as has been widely reported, debtors in chapter 11 cases are not allowed to receive PPP loans. But Congress might remedy that if it agrees on another round of COVID-19 related stimulus.
On Friday August 7th, the NAACP filed a motion to intervene in the chapter 11 bankruptcy cases of Purdue Pharma L.P. and its affiliated debtors (collectively, “Debtors”). The Motion argues that “[i]ntervention is warranted because the NAACP has an interest to ensure that the settlement allocates appropriate relief to communities of color adversely affected by the Opioid Crisis. Attention has been disproportionately focused on white suburban and rural communities with little consideration for the communities of color that have similarly experienced harm by the [c]risis, including dramatic increases in opioid misuse, addiction, and death.” These concerns are only exacerbated by the COVID-19 pandemic, the NAACP contends, which has led to economic contraction that has decreased states’ tax revenue, leading to concerns that the settlement fund may have a “disproportionate allocation and distribution” and “may be diverted for other use.” By intervening in the bankruptcy case, the NAACP hopes to protect communities of color from the repetition of “the long-storied history of [the] government’s disproportionate treatment of communities of color.”
In an appeal of a bankruptcy court’s decision, a district court judge recently addressed the treatment of the “straddle year” for federal income tax under the Bankruptcy Code, which “does not appear to have been decided by any appellate court.” In re Affirmative Ins. Holdings Inc. United States v. Beskrone, No. 15-12136-CSS, 2020 WL 4287375, at *1 (D. Del. July 27, 2020).
Our February 26 post reported on the first case dealing with the question whether a debtor in a pending Chapter 11 case may redesignate it as a case under Subchapter V, the new subchapter of Chapter 11 adopted by the Small Business Reorganization Act of 2019 (“SBRA”), which became effective on February 19. Our May 15 post reported on three more cases, two of which permitted such an amendment and one that did not.
Section 550 of the Bankruptcy Code provides that, when a transfer is avoided under one of several other sections of the Code, a trustee may recover “the property transferred, or, if the court so orders, the value of such property” from “the initial transferee of such transfer,” “the entity for whose benefit such transfer was made,” or “any immediate or mediate transferee of such initial transferee.” 11 U.S.C. § 550(a). (Transferees in the last category are known as subsequent transferees.) For example, if an entity receives a fraudulent transfer of cash, and then passes on the cash to a third party, the third party can be liable under section 550. But what if the transfer is of a non-cash asset? To qualify as an “immediate or mediate transferee” under section 550, is it necessary to receive the actual asset, or does it suffice to receive funds derived from the asset? The Tenth Circuit addressed this question in its recent decision in Rajala v. Spencer Fane LLP (Generation Resources Holding Company, LLC), 2020 WL 3887850 (10th Cir. July 10, 2020). The Tenth Circuit held that, to qualify as a “transferee” under section 550, a party must have received the actual “property transferred."
This post provides a quick primer on administrative expense claims. These claims are entitled to priority for actual and necessary goods and services supplied to a debtor in bankruptcy. For a claim to qualify for administrative expense status, a debtor must request that the claimant provide goods and services post-petition or induce the claimant to do so. The goods or services must result in a benefit to the bankruptcy estate. And the claimant bears the burden of proof that a claim qualifies for priority treatment under 11 U.S.C. § 503(b)(1)(A).
Tenants in Bankruptcy: Landlord’s Ability to Draw on Letter of Credit May Turn on Notice Requirements in Lease
The economic fallout from the COVID-19 pandemic has been particularly acute for commercial landlords. As retail and other tenants fall further behind on rent and other obligations, lessors are finding themselves drawn into more and more Chapter 11 bankruptcy cases. Yet, while it may not always feel that way to them, landlords actually have it better than most creditors in bankruptcy. Section 365 offers an array of protections to lessors of non-residential real property that other stakeholders do not enjoy, and most commercial leases are backed by some form of cash or other security deposit.
Hertz Global Holdings Inc. and most of its affiliates filed for bankruptcy on May 22, 2020. This was just one corporate failure among many in the midst of the COVID-19 pandemic; but, a novel strategy by Hertz to raise capital to fund its bankruptcy has raised eyebrows instead.
We’ve reported here and here on the January 2019 bankruptcy filing by Pacific Gas and Electric (“PG&E”), which was primarily the result of potential liability stemming from catastrophic California wildfires. Since then, PG&E has proposed an approximately $58 billion-dollar reorganization plan that includes settlements exceeding $25 billion to resolve claims by wildfire victims and regulatory agencies.
Bankruptcy Sales Under Section 363: The Business Judgment Test That Judges Often Cite Isn’t Always the One They Use
This post originally appeared in Norton Journal of Bankruptcy Law and Practice.
Bankruptcy court approval is required when a debtor wants to sell property outside the ordinary course of its business. Courts will allow transactions that reﬂect a debtor’s informed business judgment. When courts consider the rationale and evidence a debtor submits, they will sometimes cite the business judgment test as it has been articulated by the Delaware Supreme Court in cases involving consideration of corporate ofﬁcers’ ﬁduciary duties. But, in practice, bankruptcy courts apply a different bankruptcy law business judgment standard when reviewing a debtor’s proposed sale of estate property. In the corporate law context, judges will not question a board’s decision if there is no evidence of ﬂaws in the decision making process. But in the bankruptcy context, judges will make sure a debtor has a valid business reason for the proposed sale of estate property.
The Impact of the CARES Act on US Consumers, Small Businesses, Bankruptcy and Insolvency Laws and Procedures
This post originally appeared in International Corporate Rescue, published by Chase Cambria Company (Publishing) Ltd.
COVID-19 is taking an alarming and unfortunate toll on the world’s population. In the United States, the number of COVID-19-related deaths will soon approach 75,000. Billions of dollars of economic output will be lost. As a consequence, on 27 March 2020, US lawmakers signed the Coronavirus Aid, Relief, and Economic Security Act (the ‘CARES Act’) into law. It provides USD 2.2 trillion in economic stimulus to various sectors of the American economy. This article explains three aspects of the CARES Act: a consumer economic stimulus, a small business payment protection program, and the impact of the CARES Act on US bankruptcy laws and procedures in several of the nation’s busiest bankruptcy courts.
Our February 26 post entitled “SBRA Springs to Life” reported on the first case known to me that dealt with the issue whether a debtor in a pending Chapter 11 case should be permitted to amend its petition to designate it as a case under Subchapter V, the new subchapter of Chapter 11 adopted by the Small Business Reorganization Act of 2019 (“SBRA”), which became effective on February 19, 2020. Since then, three more cases have considered the issue, and two of them permitted the amendment and one did not.
Courts reviewing a bankruptcy court’s decision to approve a chapter 11 reorganization plan over the objections of an interested party must consider not only the merits, but also (if implementation of the plan was not stayed) potential injury to the reliance interests of other parties relying on the plan. These issues are confronted in Drivetrain, LLC v. Kozel (In re Abengoa Bioenergy Biomass of Kansas), 2020 WL 2121449 (10th Cir. May 5, 2020), a recent Tenth Circuit decision holding, based on circuit precedent, that an objector’s challenge to a chapter 11 plan that had already been implemented was barred under the doctrine of equitable mootness. Nonetheless, the decision noted that the doctrine is controversial and open to question.
A recent decision, In re: Grandparents.com, Inc.., et al., Debtors. Joshua Rizack, as Liquidating Tr., Plaintiff, v. Starr Indemnity & Liability Company, Defendant, Additional Party Names: Grand Card LLC, provides insight on the intersection between and among contract, tort, and fraudulent transfer theories of recovery.
Retail Apocalypse 2.0: The Fallout from the Coronavirus Will Present New Challenges to an Already Reeling Sector of the Economy
Changes in culture and technology have been reshaping the way Americans acquire and consume goods and services for a generation. Indeed, long before the coronavirus, insolvency professionals and industry experts understood that the retail landscape was experiencing a dramatic transformation. Reduced foot traffic, online competition from Amazon and others, and changing shopping patterns all combined to place enormous strain on traditional retailers. To keep up, and to match the tastes of consumers in the age of social media, retailers and shopping centers have placed a renewed focus on strategies that will create a more valuable and enriching in-store experience for consumers. It has to be modern, it has to be fun, and – above all – it has to look cool on Instagram: no one takes a selfie at Sears.
COVID-19 has sent the price of oil per barrel in a downward spiral. The plummet in business travel, cruises, vacations, weekend getaways, and non-essential travel have all led to a decreased demand for oil.
COVID-19 is taking an alarming and unfortunate toll on our country’s population. Each day, we collectively face daunting health risks, and the economic cost to individuals and businesses alike has already been, and will continue to be, staggering. Accordingly, more than at any point in the past decade, both debtors and creditors should consider the potential benefits of the bankruptcy process. This post discusses four basic bankruptcy concepts that always merit consideration, especially in these trying times.
State governments can be creditors of individuals, businesses and institutions that are debtors in bankruptcy in a variety of ways, most notably as tax and fine collectors but also as lenders. They can also be debtors of debtors, in their role, for example, as the purchasers of vast quantities of goods and services on credit. And they can also be transferees of a debtor’s property in (at least) every role in which they can be creditors.
Commercial Division Holds that Imposition of Direct Liability on Directors Who Oversaw Fraudulent Conveyance Requires Piercing the Corporate Veil
Do the directors who oversaw the fraudulent conveyance of a corporation’s assets face direct liability for it? Not unless the entities were shams and the directors exerted total dominion and control, according to Commercial Division Justice Andrew Borrok’s recent decision in Acacia Investments, B.S.C.(c) v. West End Equity I, Ltd.[i] In Acacia, Justice Borrok allowed fraudulent conveyance claims to proceed against the entities involved in an alleged transfer of judgment-debtors’ assets to a new family of companies, but did not allow direct claims against the directors of the entities. He held that Delaware law does not create a claim for director liability, and that there was no factual basis for piercing the entities’ corporate veils to hold the directors liable for the alleged fraud.
In what will come as a surprise to absolutely no one, we are already beginning to see the nascent signs of what may become significant distress in one of the industries likely to be most drastically impacted by the coronavirus outbreak: cruise lines.
Bankruptcy Court Closes Chapter 11 Cases Even with an Appeal Pending and Over the Objection of the U.S. Trustee.
Debtors in chapter 11 cases are required to make quarterly payments to the United States Trustee’s Office. These fees support the UST Program that serves in all districts but those in two states. Quarterly fees must be paid until cases are closed. And cases are closed when they are “fully administered,” a term that isn’t defined in the Bankruptcy Code or Rules.
The importance of clarity in drafting agreements can never be understated. And while there are strategies available to spouses of business owners to help protect a family in bankruptcy, it is imperative to properly plan and draft to receive such protection from the Courts. In re Somerset Regional Water Resources, LLC, _____________ F.3d ________________ (3rd Cir. 2020) (“Somerset”), recently decided by the Third Circuit Court of Appeals, offers a prime example of both cautionary concepts.
We reported on the adoption of the Small Business Reorganization Act of 2019 (“SBRA”), with its 180-day runway to effectiveness, at the time of its adoption last year. The wait is over, and SBRA is springing to life.
When there are large numbers of substantial individual tort claims against a debtor, potentially involving claimants unknowable to the debtor who themselves may not know they have a claim, the bankruptcy process faces special problems. One objective of bankruptcy is to afford final relief to the debtor from the debtor’s debts, but discharging the claims of those unknown claimants without notice and a hearing poses due process problems. A standard way to address this issue, which has arisen prominently in asbestos cases, is for the debtor to create and fund a trust to provide for tort claims brought in the future, with the court issuing an injunction channeling such claims to the trust rather than the reorganized entity. See, e.g., 11 U.S.C. § 524(g) (providing for such trusts for asbestos-related litigation). But are such trusts the only way to resolve such claims? This question is raised by the Third Circuit’s recent decision in In re Energy Future Holdings Corp, No. 19-1430, 2020 U.S. App. LEXIS 4947 (Feb. 18, 2020). The debtor instead devised a process reliant on Rule 3003(c)(3) of the Federal Rules of Bankruptcy Procedure, which authorizes a court to extend the time for filing a claim “for cause shown.” In the circumstances of that case, and with publication notice to potential claimants, the Third Circuit held that this approach comported with due process.
Big Progress in Big Cases: PG&E and Puerto Rico are Making Strides Towards Achieving Creditor Consensus
There has been considerable progress towards resolution in two of the largest bankruptcy cases pending in the United States: the Commonwealth of Puerto Rico and the California utility, Pacific Gas & Electric.
An appeal from a bankruptcy court’s final judgment must be filed within 14 days of when an appealable order is entered on the docket. Parties should not delay past the 14 days even if, for instance, the bankruptcy court must still decide a related request for an award of attorneys’ fees. Otherwise, an appeal will be untimely under Federal Rule of Bankruptcy Procedure 8002(a)(1).
We have noodled on the impact that the Supreme Court’s decision in Merit Management Group, LP v. FTI Consulting, Inc., which held that the safe harbor provided in Section 546(e) of the Bankruptcy Code does not apply when the financial institutions involved in a transaction are mere conduits or intermediaries, might have on “[t]he long-running litigation spawned by the leveraged buyout of Tribune Company . . . and the subsequent bankruptcy case.” So far, after a December decision by the Court of Appeals for the Second Circuit, the answer is: not much.
When a debtor files for bankruptcy, the Bankruptcy Code provides for an automatic stay of almost all proceedings to recover property from the debtor. See 11 U.S.C. § 362(a). A party in interest can seek an order exempting it from the automatic stay for cause. 11 U.S.C. § 362(d). A creditor that fails to obtain relief from the stay is limited to the claim-adjudication process in bankruptcy court. What happens if the bankruptcy court rules against a creditor seeking relief from the automatic stay, and the creditor seeks to appeal? Can the creditor appeal immediately or must it wait until its claim is fully adjudicated in bankruptcy court? The question turns on the interpretation of the federal statute governing bankruptcy appeals, which provides that appeals may be taken from “final judgments, orders and decrees . . . entered in cases and proceedings.” 28 U.S.C. § 158(a) (emphasis added). An automatic stay does not finally resolve a bankruptcy “case,” but does it finally resolve a bankruptcy “proceeding”? On January 14, the Supreme Court resolved that question affirmatively in an opinion by Justice Ginsburg, ruling that a creditor who is denied relief from the automatic stay may appeal immediately.
Last month, New York enacted the Uniform Voidable Transactions Act (“UVTA”), which seeks to modernize the state’s fraudulent conveyance law.
Since its introduction by the Uniform Law Commission in 2014, the UVTA has now been adopted by 21 states. The UVTA was originally drafted by the Uniform Law Commission as an amendment to the 1984 Uniform Fraudulent Transfer Act (“UFTA”); New York was one of only seven states that did not adopt the original UFTA.
A Stern Rebuke: Bankruptcy Courts have Constitutional Authority to Confirm Plans Containing Nonconsensual Third-Party Releases
On December 19, the Court of Appeals for the Third Circuit became the first federal circuit court of appeals to hold that a bankruptcy court may confirm a plan containing nonconsensual third-party releases without exceeding the constitutional limits on its jurisdiction articulated in Stern vs. Marshall. The decision in In re Millennium Lab Holdings II, LLC is notable because it rejects a new line of attack on nonconsensual releases in a jurisdiction where they are regularly permitted.
Bankruptcy Courts Don’t Need to Hold an Evidentiary Hearing in Order to Appoint a Chapter 11 Trustee
The U.S. Bankruptcy Code allows debtors to stay in control of their businesses in chapter 11. But the Code also empowers bankruptcy judges to replace a debtor’s management in certain circumstances with an outside trustee. This will happen if either cause exists to expel management or appointing a trustee is in the best interests of creditors, any equity holders, and other interests of the estate. 11 U.S.C. § 1007. Judges don’t need to hold an evidentiary hearing to appoint a trustee, but the decision to do so must be based on clear and convincing evidence.
Section 303 of the Bankruptcy Code allows creditors to initiate an involuntary bankruptcy case against a debtor. The petition initiating the case must be filed by creditors holding claims aggregating to at least $10,000, and those claims must not be “contingent as to liability or the subject of a bona fide dispute as to liability or amount.” 11 U.S.C. § 303(b)(1). Courts have disagreed as to how this provision applies when a portion of a claim is undisputed. Some courts have held that, when the undisputed portion of a claim is sufficient for the aggregated claims to reach $10,000, a dispute about the remainder of the claim does not disqualify the claim as a whole. Other courts have held that any bona fide dispute about the amount of a claim is a “bona fide dispute as to liability or amount” that prevents a claim from being used to support an involuntary bankruptcy petition. On November 26, in Montana Department of Revenue v. Blixseth, 942 F.3d 1179 (9th Cir. 2019), the Ninth Circuit embraced the second position, ruling against a state tax agency that had a large tax claim against the debtor, most of which was subject to bona fide dispute but $200,000 of which was not.
We recently reported on a decision of the United States Court of Appeals for the Third Circuit in favor of a creditor that seized a debtor’s property pre-petition. In In re Denby-Peterson, the Third Circuit sided with the minority of courts that have held that “a secured creditor does not have an affirmative obligation under the automatic stay to return a debtor’s collateral to the bankruptcy estate immediately upon notice of the debtor’s bankruptcy.” Rather, the secured creditor’s obligation to return the property is subject to a motion for turnover under Section 542 of the Bankruptcy Code. The majority of courts of appeals to consider the question, including the Seventh Circuit, have reached the opposite conclusion, that the automatic stay, which “becomes effective immediately upon filing the petition” requires the creditor to return property seized pre-petition “and is not dependent on the debtor first bringing a turnover action.”
Whether because of, or in spite of, the proliferating case law it is hard to say, but the issues in, underlying and surrounding third-party releases in Chapter 11 plans just continue to arise with incessant regularity, albeit without a marked increase in clarity. We have posted about those issues here six times in little more than two years, and it is fair to assume that this post will not be the last.
In our November 13 post entitled “500 Years and Counting: 16th Century Legal Principles Resonate in Modern Fraudulent Transfer Jurisprudence,” note 4 states in part:
The Solvent Debtor Exception Lives . . . Probably: Fifth Circuit Withdraws Controversial Ruling, but Key Holding Remains
Ultra Petroleum entered bankruptcy in significant financial distress, but then – thanks to a spike in oil prices – the debtor’s fortunes changed almost literally overnight. It is generally accepted that a solvent debtor must pay its creditors their complete contractual entitlement before any amount is paid to equity or retained by the debtor. So, in light of the debtor’s newfound solvency, bondholders and other lenders demanded payment of post-petition interest at the contract rate and payment of a “make-whole premium.” Anything less, they said, would render them “impaired” and entitled to vote on the proposed plan.
A recent decision in Delaware discussed the Barton doctrine and the application of the automatic stay in chapter 15 cases. McKillen v. Wallace (In re Ir. Bank Resolution Corp.), No. 18-1797, 2019 U.S. Dist. LEXIS 166153 (D. Del. Sept. 27, 2019).
500 Years and Counting: 16th Century Legal Principles Resonate in Modern Fraudulent Transfer Jurisprudence
Anglo-American legislators and judges have been dealing with the treatment of debtors’ transactions that adversely affect their creditors at least since the Sixteenth Century. In 1571, Parliament enacted the famous statute with the short title “An act against fraudulent deeds, alienations &c.” That statute criminalized fraudulent transactions that “delay, hinder or defraud creditors,” but inventive common-law judges promptly found in it what today we would call an implied private right of action to avoid such transactions.
Pre-Bankruptcy Seizure: Recent Third Circuit Decision Widens Circuit Split Regarding Obligations of Secured Creditors in Respect of Collateral Seized Pre-Petition
In July 2016, Joy Denby-Peterson purchased a Chevrolet Corvette. When she defaulted on one of her car payments a few months later, the Corvette was repossessed by her lender. Denby-Peterson then filed a voluntary petition under Chapter 13 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of New Jersey and demanded the lender return the Corvette. When the lender refused, she filed a motion for an order compelling turnover of the Corvette and imposing sanctions for an alleged violation of the automatic stay.
Bankruptcy Court Addresses Standard For Recovery Of An Alleged Fraudulent Transfer From A Subsequent Transferee
The Bankruptcy Code gives a trustee powers to avoid certain pre-bankruptcy transfers of the debtor’s property to other entities. For example, a trustee can avoid transfers made with the intent to impair the ability of creditors to collect on their debts. 11 U.S.C. § 548(a)(1)(A). The Code gives the trustee the power to recover the transferred property from the initial recipient, and also from subsequent recipients, “to the extent the transfer is avoided.” 11 U.S.C. § 550(a). Courts have split on whether this language requires a trustee to get a judgment avoiding a transfer prior to recovering from a subsequent transferee, or whether a trustee can simply show that the transfer is avoidable as part of the action against the subsequent transferee. A related question, however, concerns what happens when a trustee has gotten a judgment avoiding a transfer, and then seeks to recover from subsequent transferees. Can those transferees challenge whether the original transfer was avoidable? This question is the central issue in a recent decision from the United States Bankruptcy Court for the Southern District of Florida. Yip v. Google LLC (In re Student Aid Ctr., Inc.), Adv. Proc. No. 18-1493, 2019 Bankr. LEXIS 3310 (Bankr. S.D. Fla. Oct. 22, 2019).
A Bankruptcy Code Chapter 15 Primer: Decision in New York Addresses Key Issues of Jurisdiction, Recognition, Public Policy, and More
Judge Martin Glenn last week issued a decision in two related chapter 15 cases, In re Foreign Econ. Indus. Bank Ltd. “Vneshprombank” Ltd., No. 16-13534, and In re Larisa Markus, No. 19-10096, 2019 Bankr. LEXIS 3203 (Bankr. S.D.N.Y. Oct. 8, 2019). The decision is chock full of case citations and offers a tutorial on chapter 15. Practitioners should refer to the decision as a helpful, up-to-date resource.
Two insolvency proceedings had been filed in Russia. One debtor was a bank and the other was an individual. The chapter 15 cases that followed were initially assigned to Bankruptcy Judge Mary Kay Vyskocil. She issued orders recognizing both Russian cases as foreign main proceedings. An attorney who was involved in the cases filed a motion to vacate the recognition orders. Six days later the cases were transferred to Judge Martin Glenn. The opinion doesn’t say why the transfer occurred.
Close Enough: Fifth Circuit Holds That Section 510(B) of the Bankruptcy Code Requires Subordination of Payments That “Look a Lot like” Dividends
In 1930, Clarence Bennett’s wealthy uncle died. He left behind shares in Berry Holding Company ("BHC") that were subdivided into three groups. Bennett was the beneficiary of dividends paid out of one of these groups and, for many years, received his share of dividends from BHC. In 1986, BHC became Berry Petroleum Company ("BPC"), a publicly traded company, and Bennett’s interest changed. In order to preserve the intent of the wealthy uncle’s bequest, that his heirs receive income on the shares of his company, and because of an unrelated dispute with a third-party that resulted in certain of the shares being retired, BPC agreed to pay Bennett “deemed dividends” each time BPC paid an actual dividend to its shareholders.
“Reasonably Knowable Affirmative Defenses”: a Small Change to the Bankruptcy Code Could Have a Big Impact on Preference Litigation
On August 23, 2019, President Trump signed H.R. 3311 into law. The goal of the Small Business Reorganization Act is to facilitate reorganization among small businesses. One of my fellow bloggers has provided a summary that you can read here. But in addition to helping small businesses, the SBRA also offered some relief to vendors and other suppliers of goods from the bane of preference lawsuits—not just in small business cases, but in all cases under the Bankruptcy Code.
Section 548 of the Bankruptcy Code enables trustees to avoid certain pre-bankruptcy transfers of “an interest of the debtor in property,” where the transfer was intended to defraud creditors or where the transfer was made while the debtor was insolvent and was not for reasonably equivalent value. 11 U.S.C. § 548(a). Section 544 of the Bankruptcy Code enables trustees to avoid a transfer of “property of the debtor” where a creditor of the debtor would have such a right under state law. 11 U.S.C. § 544(a). The statutory requirement that the transfer be “of an interest of the debtor” or “property of the debtor” (emphasis added) has important implications for claims brought under sections 544 and 548 in the aftermath of a merger or acquisition. This point is illustrated by a recent decision from the District Court of Delaware, affirming the dismissal of fraudulent transfer claims brought under sections 544 and 548 for failure to allege transfer of property by a debtor. Miller v. Matco Electric Corp. (In re NewStarcom Holdings), Civ. No. 17-309 (D. Del. Sept. 6, 2019).
Consider these facts. A debtor in bankruptcy sued two parties for breach of contract. The debtor assigned its rights and interests in the cause of action to another entity. The defendants moved to dismiss the lawsuit, arguing that the court now lacked jurisdiction over the case. They asserted that the debtor’s assignment of the cause of action destroyed the bankruptcy court’s “related to” jurisdiction. Who wins?
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