Under Section 1141(c) of the Bankruptcy Code, property “dealt with” in a confirmed plan is free and clear of the claims and interests of creditors, provided the holder of the claim or interest participated in the bankruptcy case. But what about assets that are not explicitly specified in a disclosure statement? United States District Court Judge Cathy Seibel of the Southern District of New York recently affirmed a decision by Bankruptcy Judge Robert D. Drain holding that Section 1141(c) can reach even assets that are not explicitly identified in a disclosure statement in certain circumstances.
It’s time for a primer on the Wagoner rule and the in pari delicto defense, two concepts that arise when a debtor’s fraud leads to bankruptcy. Trustees who replace a debtor’s management often sue those involved in the corporation’s misdeeds. But the Wagoner rule and the in pari delicto defense can shield third-party defendants from liability.
There have been two significant developments in the ongoing restructuring case for the Commonwealth of Puerto Rico. First, as was widely expected, District Judge Laura Taylor Swain entered orders on February 4 and 5, respectively, approving the Commonwealth’s entry into the Commonwealth-COFINA settlement (which we reported on here) and confirming the Title III Plan of Adjustment for COFINA. The dispute over ownership of the sales taxes pledged to pay the COFINA bonds has complicated the Commonwealth’s bankruptcy case since it was commenced in 2017. Had Judge Swain been forced to resolve the dispute it could have wiped out the COFINA bondholders entirely, or assured them a 100% recovery. But, with a settlement of this dispute in hand, and a confirmed plan of adjustment confirmed for COFINA, the Debtors were poised to pivot towards pursuing a consensual plan for the Commonwealth itself.
When a party files for bankruptcy, the Bankruptcy Code imposes an automatic stay of litigation against a debtor for claims arising prior to the commencement of the bankruptcy case. See 11 U.S.C. § 362(a). Where there is a basis for bankruptcy jurisdiction in federal court, federal law also permits parties to a state court action to remove the state court action to the federal district court for the district in which the state court action is pending. See 28 U.S.C. § 1452(a). (Usually, the action will then be automatically referred to a bankruptcy court in that federal judicial district.) Absent court action to modify the automatic stay, does the automatic stay block parties from carrying out such removal of state court actions against a bankruptcy debtor? In In re Cashco Inc., No. 18-11968-j7 (Bankr. D.N.M. December 12, 2018), a bankruptcy court considered an objection to removal on this ground by a chapter 7 trustee (“the Trustee”). While noting that courts have split on this issue, the bankruptcy court ruled that the automatic stay does not apply to removing a case to the bankruptcy court where the bankruptcy case is pending, nor to other proceedings in that court, including continuation of the removed action.
Can another vain attempt to mitigate a $1.5 billion mistake provide the occasion for a thorough review of the doctrine of earmarking? It did for Southern District Bankruptcy Judge Martin Glenn in the long tail on the General Motors bankruptcy case.
Indentures often provide that an indenture trustee’s expenses incurred after an event of default constitute administration expenses under applicable bankruptcy law. However, § 503(b)(5) requires indenture trustees to show that they have made a “substantial contribution” in a case in order to receive their fees and costs. This means that a trustee is held to a higher standard than the “actual, necessary” standard that other administrative expense claimants must satisfy pursuant to § 503(b)(1)(A). Even so, some courts permit trustees to be paid from estate funds under the terms of a chapter 11 plan without satisfying the substantial-contribution standard, although the case law is not uniform.
Bankruptcy and Labor Law: Decision by Appeals Court Permits Debtor to Discharge an NLRB Fine in Bankruptcy
If the National Labor Relations Board (“NLRB”) fines an employer for unlawfully firing workers who tried to unionize, can the employer discharge the fine in bankruptcy, or will the exception to discharge found in Bankruptcy Code section 523(a)(6) apply? That section bars discharge of debts that arise from “willful and malicious injury.” The issue was addressed recently in a decision by the United States Court of Appeals for the Seventh Circuit following proceedings before an administrative law judge (“ALJ”), the NLRB, a District Court, and a Bankruptcy Court. An individual debtor had sought to use bankruptcy to discharge a liability imposed by the NLRB. However, the NLRB argued that the discharge should be denied because the debtor had engaged in “willful and malicious injury,” citing 11 U.S.C. §523(a)(6). In a 2-1 decision, the Seventh Circuit held that the administrative finding that the debtor violated §158(a)(3) of the National Labor Relations Act —which prohibits an employer from discriminating an employee to encourage or discourage membership in any labor organization—did not bar the debtor from arguing that he had not acted with malice.
A court in New York has allowed offshore debtors to take control of an investment account in the U.S. over the objection of a shareholder. At stake was the court’s discretion to permit chapter 15 debtors to access the funds and to transfer them outside the U.S. The shareholder asserted that its interests weren’t fully protected, but the court ruled that on balance the debtors’ need for the money outweighed the shareholder’s concerns.
On January 14, 2019, facing “billions of dollars in liability claims from two years of deadly wildfires,” PG&E Corporation and its regulated utility subsidiary, Pacific Gas and Electric Company, reported that they expect to file petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California on or about January 29, 2019. It is rare for a debtor to telegraph its filing so clearly in advance of the petition date, but a recently enacted California law required a 15-day advance notice period before the filing.
Fraudulent transfer law allows creditors and bankruptcy trustees, under certain circumstances, to sue transferees to recover funds received where a debtor’s transfers to the transferees actually or constructively defrauded its creditors. Under both the Uniform Fraudulent Transfer Act adopted by most states and the fraudulent transfer action created by federal bankruptcy law, a transferee of an alleged fraudulent transfer may assert a defense from such liability by establishing that it received the transfer in good faith and for reasonably equivalent value. See 11 U.S.C. § 548(c); Tex. Bus. & Com. Code § 24.009(a). Many courts have held that a transferee lacks good faith if it has “inquiry notice,” that is, if it has knowledge that would make a reasonable person suspicious and suggest a need for further investigation, even if it lacks actual knowledge of the fraudulent nature of the transfer. But some courts have held that even a transferee with inquiry notice can maintain a good faith defense if it establishes that an investigation into the facts would have been futile because it would not have revealed the fraud. In Javney v. GMAG, L.L.C., No. 17-11526, 2019 U.S. App. LEXIS 759 (Jan. 9, 2019), the Fifth Circuit held that such a futility defense was not available under the Texas Uniform Fraudulent Transfer Act (“TUFTA”).
Our January 22, May 23, June 28, July 13, August 3, September 11 and October 29, 2018 posts discussed the First Circuit’s January 12, 2018 decision in Mission Product Holdings, Inc. v. Tempnology, LLC and the pending appeal therefrom to the Supreme Court.
In a recent cross-border insolvency case, Judge Glenn of the United States Bankruptcy Court for the Southern District of New York recognized an insurance company rehabilitation proceeding in Curaçao as a “foreign main proceeding” under Chapter 15 of the Bankruptcy Code.
Section 365(h) of the Bankruptcy Code provides considerable protection to a tenant in the event of a bankruptcy filing by its landlord. Despite rejection of its lease, the tenant can elect to retain its rights, including the right to possession, for the balance of the term of the lease, including any renewal or extension period. This is black-letter bankruptcy law reflecting a sound policy judgment: it would be ruinous to business (not to mention an individual or family) if a landlord could upend a tenant’s possession whenever economic circumstances made a bankruptcy filing necessary or desirable.
A sex-abuse scandal has landed another organization in bankruptcy court. USA Gymnastics (“USAG”) filed chapter 11 last week in Indiana following a team doctor’s conviction for abusing hundreds of girls.
Creditors’ Contractual Autonomy Does Not Trump the Value of Bankruptcy Law as a Collective Dispute Resolution Mechanism
In a recent cross-border insolvency case, In re Agrokor d.d., 591 B.R. 163 (Bankr. S.D.N.Y. 2018), Judge Glenn of the United States Bankruptcy Court for the Southern District of New York recognized and enforced a restructuring plan approved by a Croatian court. Due to the nature of the debt to be discharged under the plan, the Court went through an in-depth analysis of international comity in the context of international bankruptcy law.
Let the Seller Beware? Debtor’s Attempt to Monetize its Own Default May Impact Sellers of Credit Default Swaps
The Sears bankruptcy case made headlines this month in the complex world of credit default swaps (CDS). A credit default swap is a contract pursuant to which the seller receives payment from a buyer in exchange for which the seller must compensate the buyer in the event of a default or other specified credit event. On November 9, in what it openly admitted was an attempt to take advantage of the abundance of default protection issued in the days leading up to its bankruptcy filing, Sears sought permission to auction certain “medium-term notes” (MTNs) that were issued by Sears Roebuck Acceptance Corp. (“SRAC”) prior to the petition date and held entirely by affiliates of Sears.
Defendants in a lawsuit didn’t waive their right to arbitrate even after moving to dismiss and answering a complaint, a court held last week. Arbitration wasn’t waived because the defendants hadn’t filed affirmative defenses or counterclaims and had taken no discovery. Trevino v. Select Portfolio Servicing, Inc. (In re Jose Sr. Trevino), Adv. Pro. No. 16-7024, 2018 Bankr. LEXIS 3605 (Bankr. S.D. Tex. Nov. 14, 2018).
Although it may be difficult to define precisely what an “executory contract” is (with the Bankruptcy Code providing no definition), I think most bankruptcy lawyers feel how the late Supreme Court Justice Potter Stewart famously felt about obscenity--we know one when we see it. Determining that a patent license was executory in the first place was an issue in the Fifth Circuit’s recent decision in RPD Holdings, L.L.C. v. Tech Pharmacy Services (In re Provider Meds, L.L.C.), but more interesting to this blogger was the issue, apparently decided by a Court of Appeals for the first time under the Code, of the effect of a timing provision that is unique in Chapter 7 cases.
As we reported last year, on August 10, 2017, Judge Swain entered an order establishing procedures to govern resolution of the Commonwealth-COFINA dispute (the “Resolution Stipulation”). In recognition of the fact that the Oversight Board acts for both the Commonwealth and COFINA, the Resolution Stipulation provided for appointment of agents to act independently for each of them: (i) the Creditors’ Committee, to serve as the Commonwealth’s representative (the “Commonwealth Agent”) and (ii) Bettina Whyte, an experienced restructuring professional with Alvarez & Marsal, LLC, to serve as the COFINA’s representative (the “COFINA Agent,” and, with the Commonwealth Agent, the “Agents”).
Our May 23, June 28, July 13, August 3 and September 11 posts discussed the First Circuit’s January 12 decision in Mission Product Holdings, Inc. v. Tempnology, LLC. and, most recently, the pending petition for certiorari. On October 26, the Supreme Court granted the petition, limited to the main question concerning the effect of the rejection of a trademark license.
We continue to monitor developments in what could become one of the most consequential Supreme Court cases on bankruptcy in decades.
 879 F.3d 389 (1st Cir. 2018), petition for cert. filed, No. 17-1657 (June 11, 2018).
Started as a mail-order retailer, evolved to brick-and-mortar stores in urban areas and expanded to a big-box retailer through merger, Sears is now facing the most turbulent time in its history. On October 15, 2018, Sears Holdings Corp.—the holding company of Sears and Kmart—along with its affiliated entities, filed a voluntary Chapter 11 petition in the United States Bankruptcy Court for the Southern District of New York. With assets of approximately $6.94 billion and liabilities of approximately $11.34 billion in total, the fate of “Where America Shops” remains unclear.
It’s hard to find something positive to write about Venezuela. Some basic facts tell the story of the misery there.
Consumer prices this year might rise one million percent. The minimum wage was increased by 3,000 percent so that seven million workers will now receive $20 a month. And many others live on just $2 to $8 a month and eat one meal a day. The poverty rate is a crushing 82 percent. Medicine is scarce.
The failure of Toys ‘R Us to successfully reorganize in Chapter 11 sent shockwaves throughout the retail world and the restructuring community. Saddled with unsustainable debt and unable to chart a viable path forward, the company – in bankruptcy since late 2017 – conducted going-out-of-business sales and closed most of its more than 700 stores this summer. As part of the wind-down process, the debtors scheduled an auction to sell their existing intellectual property, including the name, website, and, of course, their celebrated brand mascot, Geoffrey the Giraffe.
In hindsight, it seems inevitable that constitutional and other jurisdictional problems would arise when Congress, in enacting the Bankruptcy Reform Act of 1978, created impressive new powers and responsibilities for the bankruptcy courts (along with a considerable degree of independence) but denied them the status of Article III courts under the Constitution (by denying its judges lifetime tenure, as Article III requires). And it didn’t take long for the problems to arise.
Bankruptcy Court Finds Arbitration Clause in Consumer Loan Contract to be Sufficient Cause to Grant Relief from Automatic Stay
When a bankruptcy petition is filed, an automatic stay comes into effect staying proceedings against the debtor or the debtor’s property. 11 U.S.C. § 362(a). The stay centralizes litigation regarding the debtor and its property in the debtor’s bankruptcy case. When contract entered into pre-bankruptcy contains an arbitration clause, a bankruptcy court will consider if the stay should be enforced or if the parties can resolve the matter in arbitration. In In re Argon Credit, LLC, No. 16-39654 (Bankr. N.D. Ill. Sept. 21, 2018), a bankruptcy court considered this question in a dispute between two non-debtor parties concerning the validity of loans issued by the debtor and part of the debtor’s estate. The bankruptcy court ruled that the arbitration clause was binding and ordered the stay lifted to permit arbitration to go forward.
The Third Circuit denied a $275 million break-up fee to a bidder that was unsuccessful in its attempt to buy the crown-jewel assets in the high-profile EFH bankruptcy case. In re Energy Future Holdings Corp., No 18-1109, 2018 U.S. App. LEXIS 25945 (3rd Cir. Sept. 13, 3018). The court held that the bidder’s efforts didn’t result in a benefit to the debtors’ estates. Therefore, the bidder’s request for an administrative expense in the form of the fee was rejected.
Our May 23, June 28, July 13 and August 3 posts discussed the First Circuit’s January 12 decision in Mission Product Holdings, Inc. v. Tempnology, LLC. and, most recently, the pending petition for certiorari. Since our last post, the respondent filed its response to the petition in opposition to granting cert., giving several reasons why cert. should be denied.
We generally advise clients to think carefully before commencing an involuntary bankruptcy petition against an alleged debtor. One of the primary reasons for our caution is section 303(i) of the Bankruptcy Code, which provides that “(i) If the court dismisses [an involuntary] petition under this section other than on consent of all petitioners and the debtor, and if the debtor does not waive the right to judgment under this subsection, the court may grant judgment—(1) against the petitioners and in favor of the debtor for—(A) costs; or (B) a reasonable attorney’s fee; or (2) against any petitioner that filed the petition in bad faith, for—(A) any damages proximately caused by such filing; or (B) punitive damages.” A recent unreported decision of the Third Circuit Court of Appeals underscores the serious consequences that can flow from an adverse judgment under this section of the Code.
Third Circuit Enforces Plan Releases Against Later-Purchasing Shareholders Bringing Claims Concerning Post-Confirmation Conduct
Bankruptcy plans often include provisions releasing debtors and their officers and directors from certain potential liability. In Zardinovsky v. Arctic Glacier Income Fund, No. 17-2522 (3d Cir. Aug. 20, 2018), the United States Court of Appeals for the Third Circuit held that such a provision bound shareholders who purchased the shares after confirmation, as to post-confirmation claims including securities fraud and breach of fiduciary duty. Because this decision was at the motion to dismiss stage, what follows are the court’s characterization of the facts as alleged in the complaint.
In January 2014, Lehman Brothers Holdings, Inc. (“Lehman”) settled claims filed by Fannie Mae and Freddie Mac arising out of each of their purchases of mortgage loans from Lehman and its affiliates. Lehman then sought to recoup the amounts paid to Fannie and Freddie by way of third-party indemnification claims brought in the Bankruptcy Court against financial institutions that it alleges sold or submitted the defective mortgage loans into Lehman’s loan sale and securitization channels in the first place. A number of the financial institutions moved to dismiss for lack of subject matter jurisdiction. Earlier this week, Bankruptcy Judge Shelley Chapman held that the Bankruptcy Court has “related to” jurisdiction over the indemnification claims pursuant to 28 U.S.C. § 1334(b) and therefore denied the motions to dismiss.
The Bankruptcy Court in Delaware recently denied a request for an administrative expense claim to an entity that tried but failed to buy a debtor’s key assets. The decision arises out of the first of three attempts by entities to purchase Oncor Electric Delivery Company LLC (“Oncor”) in the complex Energy Future Holdings Corp. bankruptcy cases. In re Energy Future Holdings Corp., 2018 Bankr. LEXIS 2257 (Bankr. D. Del. Aug. 1, 2018).
Our July 13 post stated that the deadline for the respondent in Mission Product Holdings, Inc. v. Tempnology, LLC, 879 F.3d 389 (1st Cir. 2018), petition for cert. filed, No. 17-1657 (June 11, 2018), to submit a reply to the petition for certiorari seeking reversal of the First Circuit’s 2-1 decision had been extended to August 8. The respondent sought an additional extension to September 7, and, on July 24, its request was granted. We continue to monitor developments in what could become one of the most consequential Supreme Court cases on bankruptcy in decades.
In the era that preceded the Bankruptcy Reform Act of 1978 and its enactment of the Bankruptcy Code, bankruptcy estates often lost the value of leases and other contracts that could have been realized for creditors by use or sale as a result of termination provisions (either discretionary or ipso facto), limitations or outright prohibitions on assignment, and counterparty self-help. The Code sought to preserve that value for creditors by a skein of related provisions that (among other things) greatly strengthened the automatic stay, rendered bankruptcy termination provisions unenforceable, and constrained provisions that limit the assignment of contracts for value by bankruptcy estates.
In 2010, Lehman Brothers Special Financing Inc. (“Lehman”) commenced an adversary proceeding against Shinhan Bank (“Shinhan”) to avoid and recover pre-bankruptcy transfers made to the South Korean bank. In 2015, while a motion to dismiss the case was pending, a mediator proposed a resolution to both sides at a settlement conference. Two weeks later, counsel for Shinhan emailed the mediator that “Shinhan has agreed to accept” the settlement, whereupon the mediator notified both parties that a settlement was reached.
An accounting firm in the United States must produce workpapers to a chapter 15 foreign representative even if the law where the foreign main proceeding is pending would not permit such production. CohnReznick LLP v. Foreign Representatives of Platinum Partners Value Arbitrage Fund L.P. (In re Platinum Partners Value Arbitrage Fund L.P.), No. 18-5176 (DLC), 2018 U.S. Dist. LEXIS 109684 (S.D.N.Y June 29, 2018).
Our June 28 post discussed the petition for certiorari in the U.S. Supreme Court seeking review of the First Circuit’s January 12 decision in Mission Product Holdings, Inc. v. Tempnology, LLC. We noted that the respondent’s response to the petition was due on July 12.
The respondent’s response to the petition was not filed on July 12, and its time to do so has apparently been extended to August 8. In the meantime, however, an amicus curiae brief in support of the petition was filed by the International Trademark Association (INTA) on July 11. The INTA brief makes two major points--
Section 327(a) of the Bankruptcy Code imposes restrictions on the employment of professionals to assist a trustee, requiring that such professionals “not hold or represent an interest adverse to the estate” and be “disinterested persons.” Section 363(b) permits the trustee, after notice and a hearing, to “use, sell, or lease, other than in the ordinary course of business, property of the estate,” and does not impose restrictions on employment comparable to those of section 327(a). On Monday, in In re Nine West Holdings, Inc., Case No. 18-10947 (SCC), Judge Shelley C. Chapman of the Bankruptcy Court for the Southern District of New York considered the relationship between those provisions in deciding on an application to retain a management consultancy firm that had already been assisting the debtors prior to the bankruptcy petition. Judge Chapman held that the application was properly considered under section 363(b) rather than section 327(a). Applying the business judgment standard under 363(b) rather than the more stringent standard under 327(a), Judge Chapman approved the application.
Our January 22 post discussed “a long-running issue concerning the treatment of trademark licenses in bankruptcy” and its resolution in the January 12 decision of the First Circuit in Mission Product Holdings, Inc. v. Tempnology, LLC. Mission Product Holdings filed a petition for certiorari in the Supreme Court on June 11.
Courts in the Fourth and Seventh Circuits have disagreed whether objection and attendance at a hearing are prerequisites for satisfying the “person aggrieved” requirement for appellate standing. Compare In re Schultz Mfg. Fabricating Co., 956 F.2d 686, 690 (7th Cir. 1992) (attendance and objection at a bankruptcy court proceeding are requirements for appellate standing) with In re Urban Broad. Corp., 401 F.3d 236, 244 (4th Cir. 2005) (attendance and objection are not necessary for standing to appeal a bankruptcy court order).
Supreme Court Resolves Circuit Split on the Dischargeability of Debts Obtained by Oral Misrepresentations
On June 4, the Supreme Court decided Lamar, Archer & Cofrin, LLP v. Appling, No. 16-1215, in a unanimous opinion by Justice Sotomayor. The Court affirmed the Eleventh Circuit and resolved a circuit split about the meaning of “statement respecting the debtor’s . . . financial condition” in section 523(a)(2) of the Bankruptcy Code.
Judge Martin Glenn granted recognition to a UK scheme of arrangement with third-party releases that lacked full creditor consent. In re Avanti Communs. Grp., PLC, No. 18-10458, 2018 Bankr. LEXIS 1078 (Bankr. S.D.N.Y. Apr. 9, 2018). While stating that “granting third-party releases in chapter 11 cases is controversial,” Judge Glenn noted that courts will more willingly enforce third-party releases in chapter 15 cases, given the importance of comity and respect for foreign proceedings.
Bondholders announce framework for Commonwealth-COFINA Settlement; Oversight Board and Government say the deal is “Not Acceptable.”
On May 14, a large coalition of stakeholders in the COFINA-Commonwealth litigation, which we previously reported on here, announced a proposed settlement outline to resolve the long-running dispute over who owns the sales and use taxes pledged by COFINA to secure COFINA bonds. The proposed settlement is supported by the Ad Hoc Group of Puerto Rico General Obligation Bondholders, the COFINA Senior Bondholders Coalition, and certain monoline insurers. But while this is an important step forwards, the settlement does not yet have the support of the two agents appointed by the Oversight Board, the only parties with authority to settle the dispute.
Our January 22 post discussed “a long-running issue concerning the treatment of trademark licenses in bankruptcy” and its resolution in the January 12 decision of the First Circuit in Mission Product Holdings, Inc. v. Tempnology, LLC. On May 17, the U.S. Bankruptcy Court for the District of Connecticut came down on the Sunbeam side of the issue and rejected the holding and reasoning of Tempnology. It may therefore become the vehicle for the Second Circuit to speak on the question upon which the First, Third, Fourth and Seventh Circuit Courts of Appeals have spoken.
Bankruptcy Remoteness Going to a Court of Appeals--Fifth Circuit Issues Speedy, Focused Affirmance of the Dismissal of the Petition
Our February 22 post (with updates on March 19, April 17 and April 25) reported on a bankruptcy court decision dismissing a voluntary corporate Chapter 11 petition that had not been approved by a preferred stockholder of the debtor whose approval was required by the debtor’s certificate of incorporation that was on track for a direct and expedited appeal to the U.S. Court of Appeals for the Fifth Circuit, the first case squarely dealing with bankruptcy remoteness, in my memory, to reach a Court of Appeals on the merits. Last night, about three weeks after oral argument, the Court issued its unanimous opinion--clear, careful, thorough, but materially more limited than the questions that were certified to it by the Bankruptcy Court--affirming the Bankruptcy Court’s dismissal of the voluntary petition.
In a recent decision, In re B.C.I Fins. Pty Ltd. (In Liquidation), No. 17-11266, 2018 Bankr. LEXIS 1217 (Bankr. S.D.N.Y. Apr. 24, 2018), Judge Sean Lane granted a chapter 15 petition after rejecting a challenge to jurisdiction in the Southern District of New York. He held that, under Bankruptcy Code section 109(a), jurisdiction was established in the district because the debtors had a retainer payment there and claims against corporate directors for breaching fiduciary duties.
Bankruptcy Court Holds That Transferee Not Liable For Intentional Fraudulent Transfer Where Funds Were Returned To Debtor
Section 544 of the Bankruptcy Code permits a bankruptcy trustee to avoid any transfer that would be avoidable by creditors under state fraudulent transfer law. Section 550 of the Bankruptcy Code permits the bankruptcy trustee to recover from the transferee the transferred property in a fraudulent transfer avoided under section 550. Where funds were transferred in an intentional fraudulent transfer, but subsequently an equal or greater quantity of funds were transferred back to the debtor from the transferee, can the trustee still recover from the transferee? The Bankruptcy Court for the Eastern District of Pennsylvania recently considered this question in In re Incare LLC, Adv. No. 14-0248, 2018 Bankr. LEXIS 1339 (E.D. Pa. May 7, 2018), and held that the answer was no, the trustee cannot recover.
This week Dan Lowenthal and Taylor Kirklin published an article in The Bankruptcy Strategist: “SCOTUS Recap: What Lies Ahead for the Lower Courts’ Tests for ‘Non-Statutory Insiders.’” The article examines the Supreme Court’s recent opinion in U.S. Bank Nat’l Ass’n v. Village at Lakeridge, LLC, 200 L.Ed.2d 218 (U.S. 2018), in which the Court clarified the standard of review for appellate courts to apply when reviewing a bankruptcy court’s findings of fact and conclusions of law. The article proposes a solution to a question that the Court’s majority opinion left unanswered: the appropriate test for determining whether an individual is a “non-statutory insider” under the Bankruptcy Code.
To read the full article, click here.
In BFP v. Resolution Tr. Corp., 511 U.S. 531 (1994), the Supreme Court held that a mortgage foreclosure sale conducted in accordance with state law was shielded from avoidance under the Bankruptcy Code’s fraudulent conveyance provision, 11 U.S.C. § 548. In the wake of BFP, the federal courts have wrestled with the question of whether tax sales—distinct from foreclosures, but similar in concept—may be avoided in bankruptcy. Two strands of analysis have emerged: whether tax sales may be set aside as a fraudulent conveyance under section 548, and whether tax sales may be attacked as a preferential transfer under section 547. In both strands, the federal courts have continued to reach divergent, and often contradictory, results.
Our February 22 post reported that the Franchise Services of North America, Inc. decision of Bankruptcy Judge Edward Ellington of the Southern District of Mississippi dismissing a Chapter 11 petition because a shareholder had not approved the filing as required by the debtor’s charter was going directly to the U.S. Court of Appeals for the Fifth Circuit on an expedited basis. It is the first case concerning the merits of contractual or structural bankruptcy-remoteness in my memory to reach a Court of Appeals since the adoption of the Bankruptcy Code in 1978. We promised to report on developments as they occur and reported on the filing of the debtor-appellant’s brief on March 19 and the appellees’ brief on April 16.
Check Pleas: Reimbursement Check Delivered to Employee Pre-Petition is Unauthorized Post-Petition Transfer
Section 549 of the Bankruptcy Code permits a trustee or debtor in possession to avoid (and ultimately recover) a transfer of the debtor’s property “that occurs after the commencement of the case” and “is not authorized under this title or by the court.” 11 U.S.C. § 549. This sensible provision safeguards property of the estate for ratable distribution to creditors in accordance with the priorities established by the Bankruptcy Code and provides the Trustee with the necessary authority to pursue transferees that receive property of the estate without Court approval.
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