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A secured lender’s “mere retention of property [after a pre-bankruptcy–repossession] does not violate” the automatic stay provision [§362(a)(3)] of the Bankruptcy Code (Code), held a unanimous U.S. Supreme Court on Jan. 14, 2021. City of Chicago v. Fulton, 141 S. Ct. 585, 589 (Jan. 14, 2021). Reversing the Seventh Circuit’s affirmance of a bankruptcy court judgment holding a secured lender in contempt for violating the automatic stay, the Court resolved “a split” in the Circuits. Id. The Second, Eighth and Ninth Circuits had agreed with the Seventh Circuit. See, e.g., In re Weber, 719 F.3d 72, 79 (2d Cir. 2013) (by retaining possession of collateral, lender “was ‘exercising control’ over” debtor’s property). But the Third, D.C., and Tenth Circuits, had reached the right result in other cases. In re Denby-Peterson, 941 F.3d 115 (3d Cir. 2019) (secured creditor has no “affirmative obligation under the automatic stay to return a debtor’s [repossessed] collateral” to estate “immediately upon notice” of debtor’s bankruptcy filing); In re Cowen, 849 F.3d 943, 950 (10th Cir. 2017) (only “affirmative acts” to take “possession of, or to exercise control over” debtor’s property “violate” automatic stay); United States v. Inslaw, Inc., 932 F.2d 1467, 1474 C.D.C. Cir. 1991) (“Nowhere in [Code §362(a)] is there a hint that it creates an affirmative duty ….”). As shown below, the Supreme Court effectively held that the Code’s automatic stay provides no automatic turnover of a lender’s collateral. The Code’s turnover provision (§542) is also not automatic.
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Delaware District Court Could Guide Supreme Court Purdue Pharma Decision
By Michael L. Cook
A bankruptcy court properly held that derivative claims based on “piercing the corporate veil theory of liability [were] released under” a confirmed reorganization plan, but that direct “claims for negligent undertaking” were not released and “could be asserted” in state court against the debtors’ equity sponsors.
Court Caps Landlord's Bankruptcy Claim Against Lease Guarantor
By Andrew C. Kassner and Joseph N. Argentina Jr.
A big issue in real estate and retail bankruptcies, among others, involves the disposition of commercial real estate leases, given the potential magnitude of landlord damage claims under state law resulting from a tenant’s default under a long-term lease.
Delaware Bankruptcy Court Rejects Equity Holder's Challenge to Revoke Confirmation Order
By Lawrence J. Kotler
The equity owner asserted that the confirmation order previously entered by the court should be revoked based on the equity owner’s claim that value was lost due to improper sale and marketing efforts by the debtors and its professionals both pre- and post-bankruptcy and, as such, they should have been “in the money” and entitled to a distribution under the confirmed plan.
By George Williams
One of the major catalysts of the “Crypto Winter” that began in 2022 was the collapse of Terraform Labs’s native token LUNA in May 2022. Now two years and a dozen crypto-related bankruptcies later, Terraform Labs has filed for Chapter 11 protection.