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One of the most important, if not the most important Chapter 11 benefit for a reorganized debtor is the discharge of claims under Section 1141 of the Bankruptcy Code. The discharge provides the debtor with the proverbial fresh start free of legacy liabilities which caused the financial distress in the first place. In cases involving retailers, single asset real estate and other non-manufacturing debtors, the class of claims impacted by the discharge provisions is relatively straight forward and easy to identify. However, situations where a debtor places a product into the stream of commerce, which over time causes harm to those exposed, gives rise to questions such as when and whether a claim arises, and further how do you get proper notice to those persons so that a claims bar date will be binding? It is the latter issue that was recently addressed by the U.S. Court of Appeals for the Third Circuit, which examined whether the content of a debtor’s bar date notice satisfied due process, so as to discharge unknown litigation creditors’ claims against the company after confirmation of the debtor’s Chapter 11 plan of reorganization. See, Sweeney v. Alcon Laboratories, Case No. 20-2066 (3d. Cir. April 20, 2021).
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By Adam Shpeen, Aryeh Ethan Falk and Stephen Ford
Two Recent Cases Shed Light on Potential Risks to Preferred Equity Holders in Chapter 11
Preferred equity is a varied and flexible instrument, but, in practice, it typically has a limited number of common features. One feature is that it is entitled to a “liquidation preference” ahead of common stock. Whether the liquidation preference of preferred equity entitles preferred shareholders to priority over common shareholders in a Chapter 11 reorganization is a question that figured prominently in two recent high profile cases.
By Michael L. Cook
“Good-faith purchasers enjoy strong protection under [Bankruptcy Code] §363(m),” but the silent asset buyer (“B”) with “actual and constructive knowledge of a competing interest” lacks “good faith,” held the U.S. Court of Appeals for the Seventh Circuit.
By David E. Sklar and Cheryl A. Santaniello
Federal bankruptcy courts have been unavailable to marijuana businesses due to the Schedule I status of marijuana. The United States Trustee’s policy is to move to dismiss or object in each case involving marijuana assets, because they cannot be administered under the Bankruptcy Code.
By By Stuart B. Newman and Steven H. Newman
The Small Business Reorganization Act created a new pathway for small businesses to remain in control of running their businesses, which is the usual reason for choosing to seek relief under Chapter 11, while eliminating many of the reasons that typical Chapter 11 proceedings exhausted the patience, and wallets, of both debtors and creditors.