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Although Chapter 11 of the Bankruptcy Code allows existing management of a debtor to remain in control of its business, it imposes several oversight mechanisms to help ensure the integrity of the process. Two of the most common include the Office of the U.S. Trustee and an Official Committee of Unsecured Creditors. In addition, the code calls, under certain conditions, for the appointment of an independent examiner whose role can run from the very broad to extremely limited. Some courts interpret the code’s examiner appointment provisions to be mandatory if the statutory requirements are met, while many others do not. The now infamous Chapter 11 bankruptcy case of FTX Trading Ltd. (FTX), once a multibillion-dollar cryptocurrency company, has reemerged in a dispute over this very important issue. On appeal, the U.S. Court of Appeals for the Third Circuit recently held that the plain text of Section 1104(c)(2) mandates the appointment of an examiner under the specified conditions set forth. See, In re FTX Trading, No. 23-2297, 2024 U.S. App. LEXIS 1279 (3d Cir. Jan. 19, 2024). As a result, in the Third Circuit, and likely other jurisdictions, the FTX decision will carry significant implications for large and medium-sized bankruptcy cases.
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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.