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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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Seventh Circuit Applies Safe Harbor to Private Securities Transaction
By Michael L. Cook
“… [T]he term ‘securities contract’ as used in [Bankruptcy Code] §546(e) unambiguously includes contracts involving privately held securities,” The Seventh Circuit held in Petr v. BMO Harris Bank, N.A.
By Lawrence J. Kotler and Elisa Hyder
In Lafferty v. Off-Spec Solutions, the U.S. Bankruptcy Appellate Panel of the Ninth Circuit held that the discharge exceptions under Section 523(a) do not apply to corporate debtors under Subchapter V of Chapter 11 of the Bankruptcy Code.
Merchant Cash Advances Could Be More Trouble Than They’re Worth
By Joseph Pack and Jessey Krehl
As small-business owners have continued to struggle in an uncertain economy, a growing number have begun the dangerous practice of relying on merchant cash advances — essentially seeking financial shelter in a lion’s den.
Biotech Industry Bankruptcy Case Update: ‘Zymergen’ and ‘Humanigen’
By Edward E. Neiger, Marianna Udem and Joo Hee Park
This Bankruptcy Case Update focuses on the recent biotech industry bankruptcy cases of Zymergen and Humanigen.