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Consider the following: a lender and manufacturer enter into an inventory financing program for dealers of the manufacturer’s products. Pursuant to the agreement reached between the manufacturer and the lender, the lender agrees to finance the purchase of more than $100 million worth of the manufacturer’s products by various dealers, which will then sell the products to commercial and consumer third parties (depending on the type of products). The manufacturer begins experiencing supply chain issues, increases in its production costs and workforce shortages brought on by a global pandemic. The manufacturer seeks relief from its financial pressures by filing a Chapter 11 bankruptcy petition and, after filing, contends that the lender must continue to perform under the inventory financing program agreement by making loans to the dealers, notwithstanding the manufacturer’s material covenant defaults and significant uncertainty about the manufacturer’s future viability, including its ability to honor warranties for the purchased inventory.
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Appellate Courts Skeptical About Bankruptcy Court Sanctions
By Michael L. Cook
Recent appellate decisions reflect a distaste for appeals from bankruptcy court sanction orders. A split Fourth Circuit even refused to hear such an appeal. Other courts tend to limit sanctions or, alternatively, accept a bankruptcy judge’s findings under a stringent “abuse of discretion” standard.
Supreme Court’s Rejection of Purdue Pharma Settlement Redefines Releases In Chapter 11
By Angelo Castaldi
The U.S. Supreme Court has issued its most anticipated bankruptcy decision in recent memory. In a 5-4 decision entered June 27, the Supreme Court struck down the nonconsensual third-party releases. Writing for the Court, Justice Neil Gorsuch ruled that nothing in the Bankruptcy Code authorized the nonconsensual release or discharge of claims of opioid victims against the Sacklers, who were not debtors themselves.
Ninth Circuit: Debt In Asset Case Is Nondischargeable If Debtor Fails to Properly Schedule the Debt
By Lawrence J. Kotler and Geoffrey A. Heaton
In a recent published decision, the U.S. Court of Appeals for the Ninth Circuit addressed a previously unresolved question in that circuit: whether a debtor’s failure to properly schedule a debt in an “asset case” renders the debt nondischargeable.
Is the Rule Preventing Bankruptcy Judges from Appointing Special Masters Outdated?
By Mark B. Conlan and Noel L. Hillman
Rule 9031 of the Federal Rules of Bankruptcy Procedure prevents all bankruptcy judges, and, if broadly interpreted, any federal judge hearing bankruptcy cases and proceedings, from appointing special masters. The rule has not been amended since its adoption in 1983. It is outdated and should be repealed or amended to accord with the reality of today’s complex Chapter 11 cases.