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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.

COVID-19 Related Updates to Bankruptcy Courtroom Policies and Procedures

Most bankruptcy courts have altered their practices and procedures in light of COVID-19.  Below is a summary of the changes to practices and procedures in the United States Bankruptcy Courts for the Southern District of New York, the District of Delaware, and the Southern District of Texas.  We will aim to update this report as courts revise their procedures, but given the fluidity of the situation and the frequency of COVID-19-related updates, please also consult the relevant court’s website. 

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The Katz Principle Resurgent: State Sovereign Immunity Remains Abrogated in Bankruptcy

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. 

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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.

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Troubled Waters: The Cruise Line Industry May Face an Uncertain Future

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.

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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.

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Clarity Of Drafting And Reliance On A Spouse For Bankruptcy Protection - A Cautionary Tale

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.

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SBRA Springs to Life

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.

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Third Circuit Addresses the Due Process Rights of Asbestos Claimants

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.

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Bankruptcy Appellate Practice: The Entry of Bankruptcy Court Orders and the 14-Day Period to Appeal

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).

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Former Tribune Shareholders Still Merit Safe Harbor Upon Revision

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.

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Supreme Court Resolves the Appealability of Orders Denying Relief from the Automatic Stay

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.

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New York Amends Its Fraudulent Conveyance Law by Enacting the Uniform Voidable Transactions Act

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.

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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.

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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.

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Federal Appeals Court Rules on Requirements for Involuntary Bankruptcy

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.

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Update: Supreme Court Grants Cert to Resolve Circuit Split Regarding Pre-Bankruptcy Seizure

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.”

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Continuing Doubt About the Opt-Out: Uncertainty Reigns Over Third-Party Releases

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.

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News Flash Re: Fraudulent Transfer Law in New York

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:

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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.

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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.

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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. 

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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).

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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.

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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. 

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“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.

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District Court Rules on Property of the Debtor Requirement for Fraudulent Transfer Claims

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).

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Bankruptcy Jurisdiction: The Time-of-Filing Rule Applies to “Related-To” Jurisdiction

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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Small Business Reorganization Act of 2019

In the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“2005 Act”), Congress amended the Bankruptcy Code and Title 28 of the U.S. Code to provide special rules and procedures for “small business debtors.”  The small business provisions of the 2005 Act “institut[ed] a variety of time frames and enforcement mechanisms designed to weed out small business debtors who are not likely to reorganize.”

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Hahnemann University Hospital: Healthcare Bankruptcy Highlights the Tension When Private Equity Collides with the Public Interest

A “little bit of a crisis” was averted last week in the Chapter 11 bankruptcy case of St. Christopher’s Hospital for Children, a Philadelphia-area hospital with ties to Hahnemann University Hospital, which is also a Chapter 11 debtor.  On Tuesday, Delaware bankruptcy judge Kevin Gross said he could not approve a $65 million DIP loan requested by St. Christopher’s over the objection of several creditor groups because the terms of the loan were too onerous.  The failure to obtain the much-needed liquidity might have forced the hospital into a chaotic, freefall liquidation, potentially jeopardizing patients and most certainly spelling disaster for creditor recoveries.  But by Wednesday, after last-minute negotiations between the Debtor and the DIP Lender, MidCap Financial Trust, the parties reached a deal that increased the cash infusion to the estate.  Later that same day, Judge Gross said he would approve the revised loan package.  The funding is expected to keep St. Christopher’s open long enough to conclude a sale of the hospital as a going concern. 

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New York Bankruptcy Court Issues Ruling on Recognition of Foreign Proceedings

Chapter 15 of the Bankruptcy Code, added in 2005, provides a route for debtors to obtain US recognition of their insolvency proceedings in other countries.  A foreign proceeding can be recognized under chapter 15 as either a “foreign main proceeding” or a “foreign nonmain proceeding.”  11 U.S.C. § 1517.  Recognition as a foreign main proceeding entitles a debtor to certain rights, such as the automatic stay of actions against the debtor that would normally be imposed in a bankruptcy case filed in the United States.  11 U.S.C. § 1520.  To obtain recognition of a foreign proceeding as a foreign main proceeding, the foreign proceeding must be pending in the country where the debtor has the “center of its main interests” (usually abbreviated “COMI”).  The precise meaning of this somewhat elusive phrase is still being worked out by judicial decision.  On August 12, 2019, the Bankruptcy Court for the Southern District of New York issued another entry in the body of case law concerning this provision, ruling that an investment fund organized under Cayman Islands law, and involved in a liquidation proceeding there, had its COMI in the Cayman Islands rather than New York.

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Wagoner Rule, Episode 2: An Outsider Serving a Managerial Role Is an Insider

We previously discussed Bankruptcy Judge Martin Glenn’s analysis of the Wagoner Rule in the Feltman v. Kossoff & Kossoff LLP (In re TS Empl., Inc.) case.  The bankruptcy trustee (the “Trustee”) had asserted a fraud claim against the debtor’s outside accountant and its principal (the “Defendants”).  The Defendants moved to dismiss the complaint, citing the Wagoner Rule.  Judge Glenn held that the Trustee’s assertion of the adverse interest exception to the Wagoner Rule did not apply, but allowed the Trustee to amend the complaint to strengthen allegations concerning the insider exception.  In a recent decision, Judge Glenn denied the Defendants’ motion to dismiss the amended complaint, concluding that the Trustee alleged sufficient facts concerning application of the insider exception.

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When Has A Trustee Exhausted His Section 550 “Single Satisfaction”?

A bankruptcy trustee exercising her or his avoidance powers under Chapter 5 of the Bankruptcy Code may seek to recover the avoidably transferred property (or its value) from “the initial transferee,” “the entity for whose benefit such transfer was made” and “any immediate or mediate transferee of such initial transferee.  Despite the authorization to seek recovery from multiple sources, “[t]he trustee is entitled to only a single satisfaction . . . .”

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Fifth Circuit Considers Nonconsensual Third-Party Releases Outside of Bankruptcy

We’ve focused a lot on third-party releases lately, as bankruptcy courts across the country continue to evaluate whether and under what circumstances they are permissible.  But, as a recent opinion of the United States Court of Appeals for the Fifth Circuit demonstrates, bankruptcy courts are not the only courts grappling with this issue.

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Patterson Belknap Bankruptcy Update Blog Author Joins Debtwire Radio to Discuss Third-Party Releases

Bankruptcy Courts are divided on the permissibility of third-party releases.  In some circuits, the proponent of a plan can win approval of third-party release provisions in “rare” or “exceptional” circumstances.  But, some commentators have started to question just how rare and exceptional these seemingly ubiquitous plan provisions have become.  Two recent decisions from Bankruptcy Courts located in jurisdictions that permit third-party releases have brought renewed focus to this often contentious aspect of the plan confirmation process.  One of Patterson Belknap’s restructuring attorneys, Brian Guiney, recently sat down with Debtwire Radio to discuss third-party releases generally and these two cases in particular.  Click here to listen. 

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Trademark Licenses . . . Again (Update No. 8): The Supreme Court Decides! (Part 2)

Our May 22 post reported on the Supreme Court’s May 20 decision in Mission Product Holdings, Inc. v. Tempnology, LLC, an 8-1 decision holding that the rejection of a trademark license in which the debtor is the licensor does not terminate the license.  Rather, the rights of the licensee survive the rejection, and it may continue to use the licensed mark.

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SDNY Rejects Examination Request by a Claim Purchaser to Obtain Evidence for a Separate Litigation

New York Bankruptcy Judge Sean Lean recently denied a Rule 2004 request because the movant sought documents for use in an unrelated litigation.  In re Cambridge Analytica LLC, No. 18-11500, 2019 Bankr. LEXIS 1824 (Bankr. S.D.N.Y. Jun. 14, 2019).  Judge Lane said discovery sought through Rule 2004 should be used in the bankruptcy case and not in other disputes.

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Delaware Court Grants Substantial Contribution Award to Mechanic’s Lien Creditors

Delaware Bankruptcy Judged Brendan Shannon granted mechanic’s lien claimants $1.6 million for making a substantial contribution in a case by “demonstrably and materially facilitating the process of reorganization.”  In re M & G USA Corp., No. 17-12307, 2019 Bankr. LEXIS 1398 (Bankr. D. Del. May 6, 2019).

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Commonwealth Finds Common Ground: Deal with Bondholders May Be a Turning Point as Puerto Rico Seeks to Emerge in Early 2020

The Financial Oversight and Management Board for Puerto Rico (Oversight Board) announced Sunday that it had reached an agreement with bondholders regarding the terms of a plan of adjustment that would resolve $35 billion worth claims against the Commonwealth of Puerto Rico.  If approved by the Bankruptcy Court, the deal would reportedly reduce the struggling island’s outstanding bond debt to less than $12 billion, a reduction of more than 60%.

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Supreme Court Decides Civil Contempt Standard for Violations of Discharge Orders

Successful bankruptcy cases typically end with a court order releasing a debtor from liability for most pre-bankruptcy debts.  This order, generally known as a “discharge order,” prohibits the debtor’s creditors from trying to collect on those now-discharged debts.  See 11 U.S.C. § 524(a)(2).  But it is not always clear which debts are covered by a discharge order.  Some pre-bankruptcy debts are exempted from discharge by the Bankruptcy Code.  For example, section 523 of the Bankruptcy Code exempts certain debts of individual debtors from discharge, and section 1141 exempts certain debts of corporate debtors from discharge under chapter 11.  See 11 U.S.C. §§ 523(a), 1141(d)(6).  For other debts, it may be unclear whether they arose before or after the bankruptcy.  See In re Ybarra, 424 F.3d  1018 (9th Cir. 2005) (considering under what circumstances a discharge order covers an attorney’s fee award for fees incurred post-petition in an action brought before the bankruptcy petition).  Courts enforcing a discharge order’s prohibition on debt collection have thus struggled with the appropriate standard for holding a person in contempt for attempting to collect on a discharged debt.  Does it require that the person knew that the discharge applied to the debt, or is it sufficient that the discharge did in fact apply to the debt?

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SDNY Bankruptcy Court Reaffirms the Low Bar of the Property Requirement for Filing a Chapter 15 Case

Last year, we discussed a decision by Judge Sean Lane of the United States Bankruptcy Court for the Southern District of New York concerning section 109(a) of the Bankruptcy Code.  In a recent cross-border case, In re PT Bakrie Telecom Tbk, Judge Lane again addressed section 109(a) and held that an obligor on an indenture that contains New York governing law and forum selection clauses satisfies the eligibility requirement for filing a chapter 15 case in New York. 

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Trademark Licenses . . . Again (Update No. 7): The Supreme Court Decides! (Part 1)

Our January 22, May 23, June 28, July 13, August 3, September 11 and October 29, 2018 and January 11, 2019 posts discussed the First Circuit’s January 12, 2018 decision in Mission Product Holdings, Inc. v. Tempnology, LLC. and the appeal therefrom to the Supreme Court.  On May 20, the Supreme Court issued its decision reversing the First Circuit in a 8-1 opinion clarifying the consequences of the rejection of a trademark license by the licensor.  Justice Kagan’s majority opinion was joined by every Justice except Justice Gorsuch, and Justice Sotomayor also filed a concurring opinion.  Justice Gorsuch dissented.

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Bankruptcy Avoidance Actions Under Section 544(b): State Fraudulent Transfer Statutes and More

Creditors’ recoveries often hinge on claw-back lawsuits that trustees bring under bankruptcy law and non-bankruptcy law.  Trustees can file claims based on non-bankruptcy law because Bankruptcy Code section 544(b) allows them to assert claims that creditors have standing to file outside of bankruptcy.  This powerful tool enables trustees to challenge transactions that date back years before a bankruptcy filing.

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Puerto Rico’s Restructuring: A Brief Update

When we last checked in on the Puerto Rico restructuring case, we reported on the February 15 decision of the First Circuit Court of Appeals that the members of the Financial Oversight and Management Board were appointed in contravention of the Appointments Clause of the U.S. Constitution because they were never confirmed by the U.S. Senate.  But, in recognition of the implications of its decision, the Court delayed the effectiveness of its ruling for 90 days.  That 90-day deadline was set to expire on May 16, causing several commentators to express skepticism that a legislative solution could be achieved in the time allotted. 

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Another Ruling on Public Auctions Versus Private Sales Under Section 363

Two weeks ago, we discussed asset sales under Bankruptcy Code section 363.  As that post noted, section 363 requires court approval for asset sales outside the ordinary course of business, with courts ensuring that sales reflect a reasonable business judgment and have an articulated business justification.  Debtors may choose to sell assets via a public auction or through a private sale.  In our last post, we considered a case where a debtor initially arranged for a public auction and then decided to sell the property via a private sale.  What about the reverse case—what if a debtor agrees to sell property to a particular entity via a private sale, but then changes course and decides to hold a public auction instead?  On Wednesday, the Fifth Circuit Court of Appeals considered such a case in In re VCR I, LLC, No. 18-60368 (May 1, 2019).  The Fifth Circuit held that the prior agreement did not bar the change of course.

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Asset Sales in Bankruptcy: Public Auctions vs. Private Sales under Bankruptcy Code Section 363

We now address assets sales under Bankruptcy Code section 363.  The statute allows debtors to use, sell, or lease their property in the ordinary course of business without court permission.  But a debtor’s use, sale, or lease of property outside the ordinary course of business requires court approval.  And courts will usually approve a debtor’s disposition of property if it reflects the debtor’s reasonable business judgment and an articulated business justification.

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An Unresolved Issue at the Intersection of Consignment and Bankruptcy Law Decided

It always amazes me when, after more than a half-century of Uniform Commercial Code (“UCC”) jurisprudence, an issue one thinks would arise quite commonly appears never to have been decided in a reported case.  Such an issue was recently decided by the U.S. Court of Appeals for the Ninth Circuit in an adversary proceeding in the Pettit Oil Co. Chapter 7 case.

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