Bankruptcy

The Bankruptcy Strategist

Bankruptcy Court Preliminary Injunction Held Not Appealable

Michael L. Cook

A bankruptcy court’s preliminary injunction was “not a final and immediately appealable order,” held the U.S. District Court for the District of Delaware in In re Alcor Energy, LLC.

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The Bankruptcy Strategist

Discharge of Student Loan Debt OK’d Under Brunner Standard

Rudolph J. Di Massa, Jr. and Keri L. Wintle

In January, a Southern District of New York U.S. Bankruptcy Chief Judge entered a decision granting summary judgment to a pro se debtor, finding that he debtor had satisfied the “undue hardship” standard set forth in Section 523(a)(8) of the Bankruptcy Code, and ordering the discharge of the student loan debt of more than $220,000.

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The Bankruptcy Strategist

Lessor Repossession of Property on Eve of Lessee Bankruptcy

Theresa A. Driscoll

Voluntary Turnover or Face Contempt

Lessors who repossess property immediately prior to a lessee bankruptcy filing may be required to return such property or face sanctions by the bankruptcy court. Federal courts are currently split on the issue of whether the lessor must voluntary surrender property seized petition or may hold such property until such time as the debtor seeks, and obtains, an order of turnover.

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The Bankruptcy Strategist

Tips to Minimize Landlord’s Exposure When a Commercial Tenant Files Bankruptcy

Carmen Contreras-Martinez 

Landlords often have clues that a tenant is going to be filing for bankruptcy, rental payments are consistently late several months in a row and the tenant falls more than a month behind on the rent. But, it can still be shocking when a landlord receives a legal notice in the mail, instead of a rent check.

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The Bankruptcy Strategist

Recent Developments in Third Circuit Bankruptcy Law

Rachel Ehrlich Albanese and Gregory Martin Juell

Bankruptcy and corporate restructurings continue to be active despite generally strong U.S. financial markets and broader macroeconomic conditions. Here is a brief overview of three recent and noteworthy bankruptcy decisions within the Third Circuit.

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The Bankruptcy Strategist

Move Quickly: Supreme Court Holds that Bankruptcy Court’s Denial of Motion for Relief from the Automatic Stay Is a Final Appealable Order

Louis F. Solimine, James J. Henderson and Andrew L. Turscak, Jr.

In a recent, unanimous opinion authored by Justice Ginsburg, the U.S. Supreme Court affirmed lower court decisions holding that a bankruptcy court order denying a motion for relief from the automatic stay constitutes a final order that must be appealed within the time provided under Federal Rule of Bankruptcy Procedure 8002.

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Commercial Leasing Law & Strategy

Tips to Minimize Landlord’s Exposure When a Commercial Tenant Files Bankruptcy

Carmen Contreras-Martinez

Because bankruptcy can add significant expenses and increase the time it takes to remove a delinquent tenant, landlords should not allow tenants to fall far behind on rental payments. Here are some tips on how to address the issues raised by a bankrupt tenant.

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The Bankruptcy Strategist

Bankruptcy Court Denies Motion for Fee Enhancement Under ‘Common Fund Doctrine’

Rudolph J. Di Massa, Jr. and Geoffrey A. Heaton

The U.S. Bankruptcy Court for the Western District of Virginia recently denied creditors’ counsel’s motion for a fee enhancement under the “common fund doctrine,” finding it could not award the requested fees absent statutory authority.

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The Bankruptcy Strategist

Examining the Interplay Between Exculpation Clause and Fiduciary Duty

Lawrence J. Kotler 

In the case of In re Solutions Liquidation, the U.S. Bankruptcy Court for the District of Delaware adjudicated a motion to dismiss filed by the debtors’ former managers and officers in connection with the breach of fiduciary duty complaint filed against them by the trustee of the debtors’ liquidating trust.

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The Bankruptcy Strategist

Sixth Circuit Considers Rejection of a Filed Power Purchase Agreement

Andrew C. Kassner and Joseph N. Argentina Jr. 

The provisions of the Bankruptcy Code sometimes conflict with other federal laws and regulations. The Sixth Circuit Court recently considered whether an energy company debtor could reject a power purchase agreement as an executory contract that had been filed with the Federal Energy Regulatory Commission (FERC)

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The Bankruptcy Strategist

Chapter 11 Plan Support Agreements: Greasing the Wheels for Confirmation Success

John J. Rapisardi and Joseph Zujkowski 

Plan support agreements are often an essential component of a successful complex Chapter 11 reorganization and provide a framework for a debtor’s financial restructuring. These agreements have increasingly been used to induce core groups of major lenders and bondholders to support a debtor’s restructuring in return for enhanced recoveries.

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The Bankruptcy Strategist

Uniform Voidable Transactions Act Signed Into Law in NY

Thomas R. Slome, Michelle McMahon and Sophia Hepheastou

On Dec. 6, 2019, Gov. Andrew Cuomo signed legislation modernizing New York’s 95-year-old fraudulent conveyance law and making it consistent with the U.S. Bankruptcy Code and the law of at least 44 other states. The Uniform Voidable Transactions Act (UVTA) primarily clarifies the rights and remedies of parties involved in transactions with financially distressed entities.

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The Bankruptcy Strategist

Changing Outcomes Through a Reservation of Rights

Francis J. Lawall and Kenneth A. Listwak

In the day-to-day practice of bankruptcy law, it may occasionally be tempting to dismiss “reservation of rights” language as unnecessary or unimportant — after all, a pragmatically minded court will consider the economic reality of the case before it. Right? Well, the U.S. District Court for the District of Delaware’s recent ruling in Emerald Capital Advisors v. Victory Park Capital Advisors (In re KII Liquidating) demonstrates the flaws in that way of thinking.

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The Bankruptcy Strategist

The Small Business Reorganization Act: A New Bankruptcy Law for Small Businesses

Zach Shelomith

The advantages of Chapter 11 bankruptcy are oftentimes unavailable to small businesses and its owners. The substantial disclosure and reporting requirements alone scare off many potential debtors. In response to this problem, Congress recently created the Small Business Reorganization Act of 2019.

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The Bankruptcy Strategist

Overview of Limitations on Employee Compensation in Bankruptcy

Carl E. Black and Jonathan Noble Edel

Recognizing the potential consequences, companies in Chapter 11 bankruptcy often try to reduce employee uncertainty by seeking authority from the bankruptcy court. The Bankruptcy Code, however, imposes a variety of limitations on the ability of a debtor-employer to provide certain types of compensation and benefits to “insiders,” a term that is broadly defined in the Bankruptcy Code.

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The Bankruptcy Strategist

Third Circuit Allows Repossessing Secured Lender to Hold Collateral Pending Bankruptcy Stay

Michael L. Cook

“[A] secured creditor [has no] affirmative obligation under the automatic stay to return a debtor’s [repossessed] collateral to the bankruptcy estate immediately upon notice of the debtor’s bankruptcy,” the U.S. Court of Appeals for the Third Circuit held on Oct. 28, 2019 in In re Denby-Peterson.

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The Bankruptcy Strategist

Sympathy for the Debtor? Not When It Comes to Student Loans

Rudolph J. Di Massa Jr. and Jarret P. Hitchings

The assumption that bankruptcy can’t relieve a borrower of student loan obligations is incorrect, however a debtor must provide compelling evidence that an undue hardship will result if the debtor is required to repay the loan.

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The Bankruptcy Strategist

‘Dirt for Debt’ In Bankruptcy Plans of Reorganization

Peter Janovsky

A debtor’s goal in a Chapter 11 Bankruptcy is to confirm a “plan of reorganization.” Creditors usually have the right to vote for or against a plan, and in some cases, a plan can be confirmed over the objection of one or more classes of creditors. This is called a “cram-down.” The Bankruptcy Code’s rules governing cram-down are complex and differ for secured and unsecured classes of creditors. This article shows how bankruptcy courts have ruled on a particular method of cram-down known as a “dirt-for-debt” plan.

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The Bankruptcy Strategist

Cannabis Businesses In Bankruptcy

Aaron R. Cahn

Any Cannabis-Related Business or Any Business In a Relationship With One Will Likely Find Itself Barred from the Door of the Federal Bankruptcy Courts

The ability to file a federal bankruptcy case is an important resource for struggling businesses. It is particularly important to start-up businesses in an emerging field, such as the production and marketing of cannabis-related products. It is precisely this resource, however, that is currently being denied to cannabis-related businesses.

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The Bankruptcy Strategist

D&O Policy ‘Bankruptcy Exclusion’ Held To Be an Unenforceable ‘Ipso Facto’ Clause

Mark D. Silverschotz

The new decision is significant because lawsuits against former (and current) officers and directors of debtors commonly are brought, as here, by trusts established under plans of reorganization. Because insurance policies often are the only viable source of recovery for the claims asserted in such lawsuits, this decision potentially opens a pathway to creditor recovery in other similar matters.

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The Bankruptcy Strategist

Faster, Shorter, Smarter, Better: Strategies for a New Era of Bankruptcy

Chris Updike and Joseph Zujkowski

Faster, Shorter, Smarter, Better

Among other trends, practitioners are increasingly using pre-packaged and pre-negotiated cases, drafting clearer and more concise pleadings, employing smarter deposit management practices, and harnessing improved technology — strategies for a new era of bankruptcy.

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The Bankruptcy Strategist

Same Class, Different Recoveries — No Bar to Plan Confirmation

Francis J. Lawall and John Henry Schanne II

Equal treatment of claims in the same class within a plan of reorganization is an important creditor protection in Chapter 11. However, is it possible to provide certain benefits to some creditors within a single class and not others without running afoul of the Bankruptcy Code? In a recent ruling on an issue of first impression, the U.S. Court of Appeals for the Eighth Circuit certainly made clear it thought so.

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The Bankruptcy Strategist

Fifth Circuit Subordinates Claim for Deemed Dividends

Michael L. Cook

“… [P]ayments owed to a shareholder by a bankrupt debtor, which are not quite dividends but which certainly look a lot like dividends, should be treated like the equity interests of a shareholder and subordinated to claims by creditors of the debtor,” held the U.S. Court of Appeals for the Fifth Circuit.

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The Bankruptcy Strategist

8th Circuit Affirms Dismissal of Lawsuit Attacking Approved Bankruptcy Sale

Andrew C. Kassner and Joseph N. Argentina Jr. 

Sales of substantially all of a debtor’s assets are commonplace in corporate Chapter 11 bankruptcies. The sale is supervised and approved by the Bankruptcy Court. Purchasers desire to know that if the sale is consummated, they will be protected from subsequent attacks on the sale and the sale process and presumably more bidders will participate, resulting in greater returns for the estates and creditors. Issues surrounding the finality of a bankruptcy sale were recently reviewed by the U.S. Court of Appeals for the Eighth Circuit.

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The Bankruptcy Strategist

Something to Remember: The Flexibility of Chapter 11 in Retail Situations

Christopher T. Greco, Spencer A. Winters and Derek I. Hunter

In the face of increasing pressure from online retailers, and declining foot-traffic in malls and other brick-and-mortar locations, distressed retailers like Things Remembered need to act expeditiously to execute going-concern transactions if they are going to survive the market disruption.

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The Bankruptcy Strategist

Mitigating Lender Risk in Constructive Fraudulent Transfer Litigation

Arthur Steinberg and Michael R. Handler

Lenders must carefully analyze the full ramifications of how best to approach the constructive fraudulent transfer issue when it emerges in their bankruptcy case.

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The Bankruptcy Strategist

Third Circuit Clarifies Appeal Process in Settlement and Reorganization Plan Disputes

Michael L. Cook

The Third Circuit recently took a “pragmatic approach” when affirming lower court orders denying a stay of bankruptcy settlement distributions pending appeal. After holding that the district court’s “stay denial order” was “final” for jurisdictional purposes, it also confirmed “the applicable standard of review” on motions for stays pending appeals.

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The Bankruptcy Strategist

Lessor Repossession of Property on Eve of Lessee Bankruptcy

Theresa A. Driscoll

Voluntary Turnover or Face Contempt

Lessors who repossess property immediately prior to a lessee bankruptcy filing may be required to return such property or face sanctions by the bankruptcy court. Federal courts are currently split on the issue of whether the lessor must voluntary surrender property seized pre-petition or may hold such property until such time as the debtor seeks, and obtains, an order of turnover.

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The Bankruptcy Strategist

Fourth Circuit: Debt Incurred As a Result of Willful and Malicious Injury May Be Dischargeable

Rudolph J. Di Massa Jr. and Drew S. McGehrin

The U.S. Court of Appeals for the Fourth Circuit recently held that a debt incurred as a result of a willful and malicious injury may nevertheless be dischargeable notwithstanding the provisions of 11 U.S.C. Section 523(a)(6).

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The Bankruptcy Strategist

Resolving the Competing Desires of Buyers and Tenants In Bankruptcy

Daniel A. Lowenthal

A Tension Between §§363(f) and 365(h)

How do bankruptcy judges resolve the competing desires of buyers and tenants? Must buyers bid for property knowing that tenants might have the right to stay if their leases are rejected? Are tenants in jeopardy that they might have to move elsewhere to live or work?

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The Bankruptcy Strategist

Bankruptcy Court Rules U.S. Trustee Amended Fee Schedule Unconstitutional

Francis J. Lawall and Marcy J. McLaughlin

The Office of U.S. Trustee is known among practitioners as the “watchdog” of the bankruptcy process. To fund the U.S. Trustee, Chapter 11 debtors must pay quarterly fees. Following a recent substantial increase to the U.S. Trustee fee schedule, the U.S. Bankruptcy Court for the Eastern District of Virginia found the amended fee schedule to be unconstitutional because it was being applied nonuniformly to Chapter 11 debtors around the country.

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Commercial Leasing Law & Strategy

Lessor Repossession of Property on Eve of Lessee Bankruptcy: Voluntary Turnover or Face Contempt

Theresa A. Driscoll

Lessors who repossess property immediately prior to a lessee bankruptcy filing may be required to return such property or face sanctions by the bankruptcy court. Federal courts are currently split on the issue of whether the lessor must voluntary surrender property seized pre-petition or may hold such property until the debtor obtains an order of turnover.

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The Bankruptcy Strategist

Supreme Court Rules Rejection of Trademark License Does Not Rescind Rights of Licensee

Mark Page

Mission Product Holdings, Inc. v. Tempnology, LLC

The question is whether a debtor’s rejection of its agreement granting a license “terminates rights of the licensee that would survive the licensor’s breach under applicable nonbankruptcy law.”

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The Bankruptcy Strategist

Trustee Litigation Trend: Tuition Clawback

Theresa A. Driscoll

With increasing frequency, Chapter 7 trustees are looking to insolvent parents as well as colleges and universities to avoid and recover for estate creditors payments made by insolvent debtors for the benefit of the debtors’ dependents. These cases are premised on the theory that the tuition payments being made by insolvent parents for the benefit of their children are avoidable as constructively fraudulent transfers because the parents do not receive reasonably equivalent value in exchange for the payment of such tuition. Courts are divided as to whether the payment of a child’s tuition provides reasonably equivalent value to the insolvent parents.

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The Intellectual Property Strategist

Case on ‘Coolcore’ Marks Settles a 34 Year Debate Regarding Bankruptcy and IP Law

Charles A. Cartagena-Ortiz

The U.S. Supreme Court issued its long-awaited decision in Mission Product Holdings, Inc. v. Tempnology , ruling that a trademark licensee can retain its rights under a trademark license agreement that is rejected by the licensor as an executory contract in bankruptcy.

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The Bankruptcy Strategist

Civil Contempt for Discharge Injunction Violations: A New Standard That Brings the ‘Old Soil’ with It

Stephanie Lieb and Dana Robbins

In its recent opinion in Taggart v. Lorenzen, the Supreme Court decided that “[a] court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct.” Although this standard appears to be new, it is more than a century old and “brings the old soil” from civil contempt with it.

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The Bankruptcy Strategist

Involuntary Bankruptcy: Limited Remedy and Strong Sanctions for Abuse

Michael L. Cook

A bankruptcy court decision recently detailed how courts applying Bankruptcy Code §303(i) can sanction creditors who “abuse … the power given to [them] … to file an involuntary bankruptcy petition.” The decision shows why the filing of an involuntary bankruptcy requires careful pre-filing legal judgment.

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The Bankruptcy Strategist

The Curious Case of Extraterritoriality and Fraudulent Transfer Under the Bankruptcy Code

Rick Antonoff

Courts Are Divided on the Issue of Whether the Fraudulent Transfer Recovery Provision Applies Extraterritorially

The U.S. Court of Appeals for the Second Circuit recently issued an opinion concluding that trustees can pursue recovery from foreign subsequent transferees who received property in transactions that occurred entirely outside the United States. The opinion reversed two lower court rulings and arguably conflicts with Supreme Court precedent on extraterritoriality of U.S. legislation.

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The Bankruptcy Strategist

Navigating the Attorney-Client Privilege and Work Product Doctrine in Bankruptcy

Rena Andoh and Kate Ross

When a company declares bankruptcy, avoidance actions under Chapter 5 of the Bankruptcy Code can assist in securing extra cash for the debtor’s dwindling estate. When a debtor-in-possession does not pursue these claims, creditors’ committees often seek the bankruptcy court’s authorization to pursue them on behalf of the estate. Once granted such authorization through a “standing order,” a creditors’ committee is said to “stand in the debtor’s shoes” because it has permission to litigate certain claims belonging to the debtor that arose before bankruptcy. However, for parties whose cases advance to discovery, such a standing order may cause issues by leaving undecided the allocation of attorney-client privilege and work product protection between the debtor and committee.

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The Bankruptcy Strategist

New York District Court Rules that Chapter 15 Recognition Is Not Prerequisite to Enforcement of Foreign Bankruptcy Judgment under Principles of Comity

Dan T. Moss and Mark G. Douglas

It has been generally understood that recognition of a foreign bankruptcy proceeding under Chapter 15 is a prerequisite to the enforcement by a U.S. court of an order or judgment entered in such a foreign bankruptcy proceeding under the doctrine of "comity." A ruling recently handed down by the U.S. District Court for the Southern District of New York directly challenges that principle.

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The Bankruptcy Strategist

Safe Harbor Shields Shareholders In Tribune Fraudulent Transfer Litigation

Michael L. Cook

The U.S. District Court for the Southern District of New York denied a litigation trustee’s motion for leave to file a sixth amended complaint that would have asserted constructive fraudulent transfer claims against 5,000 Tribune Company shareholders. The safe harbor of Bankruptcy Code §546(e) barred the trustee’s proposed claims.

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The Bankruptcy Strategist

‘Fresh Start’ Leads To Bankruptcy Discharge of Environmental Contamination Claims

Andrew C. Kassner and Joseph N. Argentina Jr.

One of the powerful benefits of bankruptcy is the ability to obtain a “fresh” start by obtaining a discharge of most, but not all claims that arose prior to the filing of the bankruptcy case. But when does a claim arise? This issue is especially complex when environmental contamination claims are involved.

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The Bankruptcy Strategist

Fifth Circuit Blocks Fraudulent Transferee’s Good Faith Defense

Michael L. Cook

“A … transferee [who] received fraudulent transfers with actual knowledge or inquiry notice of fraud or insolvency” loses any “good faith” defense available under the Texas version of the Uniform Fraudulent Transfer Act (TUFTA), held the Fifth Circuit in Janvey v. GMAG, LLC

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The Bankruptcy Strategist

What Has Merit Management Changed?

Matthew Gold

It has been nearly two years since the Supreme Court upended the world of the Bankruptcy Code securities safe harbor with its decision in Merit Management Group, LP v. FTI Consulting, Inc.. For all of the speculation regarding its consequences, there have been few subsequent lower court decisions applying Merit Management, however those cases provide valuable guidance to practitioners facing safe harbor litigation as well as transactional lawyers looking to take advantage of safe harbor protections.

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The Bankruptcy Strategist

A Clash Between ‘Free and Clear’ and Tenants’ Rights Under Bankruptcy Code Section 365(h)

Albena Petrakov

With the recent carnage in the retail industry, a lot of attention goes to the fate of landlords when their tenants seek bankruptcy protection. A recent case that brings balance is Revel AC Inc. v. IDEA Boardwalk, LLC.

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The Bankruptcy Strategist

Preference Attacks To Recover Prepetition Compensation Paid to Consultants of Troubled Companies

Paul A. Rubin and Hanh V. Huynh

Employees of a troubled company who stay on as consultants to assist in liquidating its assets or preparing the company for a bankruptcy filing may later be disappointed to face claims to claw back their prepetition compensation.

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The Bankruptcy Strategist

Quasi-Bankruptcy Quagmires

Howard C. Rubin and Deirdre M. Richards

When Entities May Not Have a Filing Choice and How Creditors Are Impacted

This article explores the difficulties some entities have encountered in filing bankruptcies and how one organization used extraordinary civil remedies in an attempt to accomplish what reorganization under Chapter 11 of the United States Bankruptcy Code would have provided.

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Commercial Leasing Law & Strategy

A Clash Between ‘Free and Clear’ and Tenants’ Rights Under the Bankruptcy Code’s Section 365(h)

Albena Petrakov

With the recent carnage in the retail industry, including Sears and many other retailers of all shapes and sizes, a lot of attention goes to the fate of landlords when their tenants seek bankruptcy protection.

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The Bankruptcy Strategist

Take-Aways from the Sears Sale Process

Adam L. Rosen

As widely reported, the downfall of Sears was a slow-motion train wreck. Despite its unique size and complexity, however, some of the strategies and techniques used by the stakeholders in Sears can be applied in cases of any size.

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Business Crimes Bulletin

Eighth Circuit Rejects Ponzi Scheme Presumption to Protect Legitimate Loan Repayments

Michael L. Cook

In Stoebner v. Opportunity Finance, LLC, the U.S. Court of Appeals for the Eighth Circuit held that “… Ponzi scheme payments to satisfy legitimate antecedent debts to defendant banks could not be avoided” by a bankruptcy trustee “absent transaction-specific proof of actual intent to defraud or the statutory elements of constructive fraud — transfer by an insolvent debtor who did not receive reasonably equivalent value in exchange.”

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