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A Chapter 11 corporate debtor’s monetary penalty obligation owed to the Federal Communication Commission (FCC), resulting from “fraud on consumers,” survived the debtor’s reorganization plan discharge, even when the FCC “was not a victim of the fraud,” held the U.S. District Court for the Southern District of New York on Sept. 2, 2021. In re Fusion Connect, Inc., 2021 WL 3932346, 1 (S.D.N.Y. Sept. 2, 2021). On appeal, the court reversed the bankruptcy court’s dismissal of the Government’s non-dischargeability complaint under Bankruptcy Code (Code) §1146(d)(6), explaining that the fraud exception to dischargeability reaches debts owed to “creditors who were not themselves defrauded,” such as the Government here. Id., at 2. According to the court, the bankruptcy court had confirmed the debtor’s reorganization plan with a broad discharge (i.e., release) of pre-bankruptcy debt, but the plan confirmation order put “stakeholders … on notice that [the FCC Penalty] could attach to the newly constituted [reorganized] entity,” when its terms made the dischargeability of that liability “an open issue.” Id., at 12.
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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.