Bankruptcy

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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The Bankruptcy Strategist

Don’t Set Me Off: No Triangular Setoff Among Affiliated Entities and a Debtor Counterparty

Adam C. Rogoff

In today’s global economy, companies often have multiple business lines operating through separate entities. Outside of bankruptcy, these affiliated operations sometimes transact in a holistic — albeit legally distinct — debtor-creditor relationship with their counterparty. But, as this article discusses, the legal separateness of affiliates can hinder economic protections that a creditor might have otherwise when its counterparty files for bankruptcy.

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The Bankruptcy Strategist

Caveat Intercreditor: Bankruptcy May Be Coming

Joel H. Levitin, Richard A. Stieglitz Jr. and Stephen J. Gordon

Bankruptcy Provisions in First Lien/Second Lien Intercreditor Agreements

While intercreditor agreements (ICAs) are not necessarily the most attention-grabbing of the various loan documents common to large financing transactions, they are nevertheless important, and lack of attention to detail with respect to their provisions could lead to unintended results in any future bankruptcy case.

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The Bankruptcy Strategist

Case Study: Delaware Bankruptcy Court Denies Trustee’s Breach of Fiduciary Duty Suit

Earl M. Forte

In January, a bench trial occurred in In re Covenant Partners, L.P., in which the Trustee of Debtor, Covenant Partners, L.P., sued for breach of fiduciary duty.

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The Bankruptcy Strategist

How Bankruptcy Courts Will Treat Cases Involving Cryptocurrency Exchanges

Richard J. Mason

This article looks at some of the issues that may arise if a cryptocurrency exchange becomes a debtor in a case under the Bankruptcy Code.

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The Bankruptcy Strategist

The How, What and Why of a Potential PG&E Bankruptcy

John J. Rapisardi and Daniel Shamah

PG&E Corporation and its subsidiary, Pacific Gas & Electric Company announced that it expects to file for Chapter 11 bankruptcy protection on or around Jan. 29, 2019, right around the conclusion of a mandatory 15-day notice requirement under California law. Such a filing would represent the second time PG&E resorted to protection under the U.S. Bankruptcy Code.

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The Bankruptcy Strategist

Junior Noteholders Successfully Petition for Dismissal of Involuntary Filing

H. Peter Haveles, Jr. and Eric Winston

The bankruptcy court’s ruling is a seminal decision that meaningfully circumscribes the ability of a secured noteholder under an indenture, particularly for structured debt, to force the debtor (i.e., issuer of the debt) into an involuntary bankruptcy.

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The Bankruptcy Strategist

Reports of the Demise of ‘Gifting’ Chapter 11 Plans Are An Exaggeration

Timothy W. Hoffmann and Mark G. Douglas

In Nuverra Environmental Solutions,, the U.S. District Court for the District of Delaware affirmed a bankruptcy court order confirming a non-consensual Chapter 11 plan that included “gifted” consideration from a senior secured creditor to fund unequal distributions to two separate classes of unsecured creditors.

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Commercial Leasing Law & Strategy

The Bankruptcy Code’s Inherent Limitations for Struggling Golf Courses

Daniel A. Lev

Part One of a Two-Part Article

This article describes conflicts with zoning boards and neighbors as it relates to distressed golf course properties and the methods sometimes available in the bankruptcy realm for working around the problem of restrictive covenants that run with the land.

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The Bankruptcy Strategist

Eighth Circuit Rejects Ponzi Scheme Presumption to Protect Legitimate Loan Repayments

Michael L. Cook

The Eighth Circuit affirmed the lower courts’ dismissal of a bankruptcy trustee’s $250 million fraudulent transfer suit against two banks (the Banks), rejecting the so called “Ponzi scheme presumption” that “allows a creditor to by-pass the proof requirements of a fraudulent-transfer claim by showing that the debtor operated a Ponzi scheme and transferred assets ‘in furtherance of the scheme.’”

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The Bankruptcy Strategist

Fifth Circuit Holds Asset Purchaser Unable to Acquire Rejected License Agreement

Michael L. Cook

A license agreement “deemed rejected by operation of law” could not be acquired under a court-approved asset purchase agreement, held the U.S. Court of Appeals for the Fifth Circuit

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The Bankruptcy Strategist

Secured Creditors Beware of Your Descriptions, Nomenclature and Terminations

Deirdre M. Richards and Howard C. Rubin

Secured creditors can learn a great deal from a few recent bankruptcy cases involving the Uniform Commercial Code that remind us that the “devil is in the details.” These cases show that it is unrealistic to expect forgiveness by a court after a misstep involving Article 9 of the UCC.

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The Bankruptcy Strategist

Strawberry Fields For Sale

Barry A. Chatz and Kevin H. Morse

On Oct. 3, 2018, the Chapter 11 Liquidating Plan of Eclipse Berry Farms, LLC was confirmed, concluding a two-year journey from one of the largest strawberry growers in the country to the cessation of operations and eventual liquidation.

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The Bankruptcy Strategist

Debtor v. UST: The Battleground Over Retention of a Chief Restructuring Officer

Mark S. Melickian and Jack O’Connor

The battle over retaining a chief restructuring officer, which the United States Trustee has traditionally not objected to, is heating up.

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The Bankruptcy Strategist

Second Circuit Rejects Use of Involuntary Bankruptcy Petition As Collection Tool

Michael L. Cook

A bankruptcy court properly dismissed a creditor’s involuntary bankruptcy petition “for cause” when it “would serve none of the Bankruptcy Code’s goals or purposes … and [when] the sole [petitioning] creditor is not substantially prejudiced by remedies available under state law,” held the U.S. Court of Appeals for the Second Circuit in In re Murray.

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The Bankruptcy Strategist

Which Financial Representations Will Justify a Discharge Objection after Lamar, Archer?

John A. Thomson, Jr.

The Supreme Court’s decision in Lamar, Archer & Cofrin, LLP v. Appling has significantly constricted the range and nature of statements that will support a successful objection by a creditor to the discharge of a debt that was obtained by the statements in question. This constriction could have a very real impact on how entities that loan money or provide services on credit review and collect information regarding a borrower’s creditworthiness.

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The Bankruptcy Strategist

Defusing the UST Tax Bomb

Jacob H. Marshall

How Lenders and Debtors can Minimize UST Fees and Maximize Creditor Recoveries

As predicted in the first part of this article (May, 2018), the new United States Trustee (UST) fee has had a disproportionate effect on middle-market, high-velocity cash flow companies. The best solution is for Congress to revisit the fee structure and refine it to reflect the realities of particular cases and the actual burden on the UST.

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The Bankruptcy Strategist

Eleventh Circuit Strengthens Creditor’s Defense to Preference Claim

Michael L. Cook

A defendant creditor in a preference suit may offset 1) the amount of later “new value” it sold to the Chapter 11 debtor against 2) the debtor’s earlier preferential payment to the creditor, the U.S. Court of Appeals for the Eleventh Circuit recently held.

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The Bankruptcy Strategist

The Bankruptcy Code’s Inherent Limitations for Struggling Golf Courses

Daniel A. Lev

Part Two of a Two-Part Article

The ability of a debtor to reject a restrictive covenant under Section 365 or to sell free and clear of a covenant under Section 363(f) is limited and the obstacles are difficult to surmount. A possible solution, however, may surface if a debtor can demonstrate a change of circumstances under state law.

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The Bankruptcy Strategist

Third Circuit Affirms Reversal of $275M Break-Up Fee in Del. Bankruptcy Case

Tom McParland

The U.S. Court of Appeals for the Third Circuit on Sept. 13 upheld a Delaware Bankruptcy Court’s decision to block a Florida-based energy company from collecting a $275 million merger termination fee against the bankruptcy estates of Energy Future Holdings Corp. and a subsidiary.

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The Bankruptcy Strategist

Acquisition of Claims for Plan Control

Jeff J. Friedman

The United States Court of Appeals for the Ninth Circuit recently provided additional guidance to creditors seeking to block confirmation of a plan by…

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The Bankruptcy Strategist

'Secured Lender's Corner:' Protecting the Secured Lender Before a Mortgagor or Lessee Files Bankruptcy

Deirdre M. Richards and Howard C. Rubin

It is important for a secured lender to protect itself when entering a transaction with a borrower or lessee to avoid a total loss if the borrower or lessee files a bankruptcy petition or if the leased equipment is damaged, missing or both.

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The Bankruptcy Strategist

The Bankruptcy Code’s Inherent Limitations for Struggling Golf Courses

Daniel A. Lev

Part One of a Two-Part Article

A simple Web search will unearth countless privately-owned golf courses that have closed, are for sale, or have sought bankruptcy protection as an avenue toward a financial restructuring or redevelopment. However, there are limitations on what the owner of a golf course can accomplish in Chapter 11 when the property is burdened with restrictive covenants limiting the use of the property.

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