Bankruptcy Update Blog

Bankruptcy Update Blog provides current news and analysis of key bankruptcy cases and developments in US and cross-border matters. Patterson Belknap’s Business Reorganization and Creditors’ Rights attorneys represent creditors’ committees, trade creditors, indenture trustees, and bankruptcy trustees and examiners in US and international insolvency cases. Our team includes highly skilled and experienced attorneys who represent clients in some of the most complex cases in courts throughout the US and elsewhere.

Check Pleas: Reimbursement Check Delivered to Employee Pre-Petition is Unauthorized Post-Petition Transfer

by Brian P. Guiney on April 18, 2018

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.

Hartford Lifeline: Connecticut is Poised to Bail Out Its Struggling Capital

by Brian P. Guiney on March 9, 2018

In September, we reported on the possible bankruptcy of Connecticut’s capital city and questioned whether anything short of a State-led bailout could save the City from its crippling deficit and mounting debt service payments.

One and Done. Cramdown Requirement for an Impaired Assenting Class Applies on a Per-Plan, Not a Per-Debtor, Basis.

by Brian P. Guiney on February 9, 2018

Confirmation of a Chapter 11 plan of reorganization generally requires the consent of each impaired class of creditors. But, upon satisfaction of additional statutory requirements, a plan proponent can obtain confirmation of a “cramdown” plan over the dissent of one or more classes of creditors as long as “at least one class of claims that is impaired under the plan has accepted the plan.”

Dispute Evolution: A bona fide dispute regarding claim amount may disqualify creditor from maintaining an involuntary case.

by Brian P. Guiney on January 3, 2018

Section 303(b)(1) of the Bankruptcy Code generally requires three petitioning creditors to join an involuntary petition, each of which must hold claims against the debtor that are not contingent as to liability and are not the subject of a bona fide dispute as to liability or amount.

Forum Selection Clause in an Unsigned Pre-Petition Engagement Letter is Binding on Chapter 11 Trustee.

by Brian P. Guiney on November 30, 2017

Every lawyer knows that it is important to enter into a signed engagement letter with a client before commencing legal representation. But, as one law firm recently discovered, even an unsigned engagement letter is better than none at all. The decision of the United States Bankruptcy Court for the Northern District of Georgia in Glass v. Miller & Martin, PLLC addresses this plus several other key concepts for Bankruptcy Court litigants.[1]

Non-Consensual Third-Party Releases in Chapter 11 Plans: a Recent Decision

by Brian P. Guiney on November 9, 2017

A recent decision of the United States Bankruptcy Court for the Southern District of New York provides important guidance on the limits of nonconsensual third-party releases in the Second Circuit. SunEdison, Inc. sought confirmation of a plan for itself and its affiliated debtors. The plan included releases of claims against non-debtor third parties by any creditor that was entitled to but did not cast a vote on the plan. No party objected to the release at the confirmation hearing, but Judge Bernstein asked sua sponte whether he had authority to bind non-voting creditors to broad releases of claims against third parties.

Fees for Fees: Testing the Limits of ASARCO

by Brian P. Guiney on October 13, 2017

Unsecured creditors and other stakeholders sometimes challenge the reasonableness of fees incurred by estate professionals in a bankruptcy case. Whether this is to augment unsecured creditor recoveries or serve as a check on the private bar is in the eye of the beholder. Whatever the reason, fee litigation in bankruptcy caused many professionals to seek payment from the bankruptcy estate for any fees incurred defending against an objection to their fees. This practice was eventually challenged and, in 2014, the Supreme Court ruled that the Bankruptcy Code does not permit it. The Court’s holding was grounded in the American Rule, which provides that “[e]ach litigant pays his own attorney’s fees, win or lose, unless a statute or contract provides otherwise.” Section 330(a)(1)’s provision for “reasonable compensation for actual, necessary services rendered,” the Court announced, “neither specifically nor explicitly authorizes courts to shift the costs of adversarial litigation from one side to the other—in this case, from the attorneys seeking fees to the administrator of the estate—as most statutes that displace the American Rule do.”

Hartford Bankruptcy Looming after Latest Downgrade

The City Once Dubbed “New England's Rising Star” Has Fallen on Hard Times

by Brian P. Guiney on September 28, 2017

On Tuesday, two leading credit-rating agencies again downgraded the city of Hartford: Moody’s Investors Service now rates the struggling city at Caa3, while S&P Global Ratings has lowered its rating to CC. They attribute the junk classification to the increasing likelihood of a default by Hartford on its debt service obligations to bondholders.

Puerto Rico: Commonwealth-COFINA Dispute Teed Up for Resolution by Year’s End

by Brian P. Guiney on September 20, 2017

On June 30, 2016, the Financial Oversight and Management Board for Puerto Rico (“Oversight Board”), which was established under the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), filed a voluntary petition for relief for the Commonwealth of Puerto Rico (the “Commonwealth”). On May 5, Chief Justice Roberts appointed District Judge Laura Taylor Swain of the Southern District of New York to conduct the case. Judge Swain was a bankruptcy judge in the Eastern District of New York before joining the district court in 2000.

No Easy Way Out: Legal Malpractice Defendants Desiring an Alternative Forum May Be Forced to Litigate in Bankruptcy Court until the Case is “Trial Ready”

by Brian P. Guiney on August 25, 2017

Some legal malpractice defendants are content to litigate claims asserted by debtors in the bankruptcy court. But many others, fearing that the debtor’s creditors may view them as a deep-pocketed resource to augment their own recoveries, would prefer to defend malpractice claims in what they view as a more neutral forum. A recent decision by the United States District Court for the Southern District of Florida underscores how difficult it can be for lawyers and law firms in this latter group to move a legal malpractice case out of bankruptcy court, even when it is clear that the bankruptcy court cannot finally adjudicate the dispute.

An Inconvenient Truth: Litigants’ Access to U.S. Bankruptcy Courts is Subject to Doctrine of Forum Non Conveniens

by Brian P. Guiney on July 25, 2017

A recent decision of the United States Bankruptcy Court for the Southern District of New York confirms that despite the increasing frequency and ease with which foreign plaintiffs and defendants can gain access to Bankruptcy Courts in the United States (through Chapter 15 or otherwise), those courts will not hesitate to dismiss a case on the ground of forum non conveniens.