Zone of Insolvency

Zone of Insolvency

Category Archives: Bankruptcy

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Lenders Beware: Diligence Needed to Protect that Guarantee Claim From Substantive Consolidation in Bankruptcy

Posted in Bankruptcy
Last month, the Bankruptcy Court for the Southern District Of New York overruled an objection to proposed substantive consolidation provisions included in the plan of reorganization for Republic Airways Holdings Inc. See In re Republic Airways Holdings Inc., 565 B.R. 710 (Bankr S.D.N.Y. 2017). The bankruptcy court’s ruling provides a good refresher on the requirements… Continue Reading

SCOTUS Ends Structured Dismissals that Circumvent Priority Rules

Posted in Bankruptcy
Earlier today, in Czyzewski v. Jevic Holding Corp., the Supreme Court put an end to “structured dismissals” that allow a debtor to leave bankruptcy while circumventing the Bankruptcy Code’s creditor payment priority scheme. A Chapter 11 debtor generally has three options for exiting bankruptcy: (1) a confirmed plan of reorganization (or liquidation); (2) conversion to… Continue Reading

Appeals Court Strengthens Protections for Bankruptcy Committee Members

Posted in Bankruptcy, Bankruptcy Courts
Serving on a court-appointed bankruptcy committee can come with many benefits, and the list just got a little longer. In Blixseth v. Brown, the Ninth Circuit held that committee members enjoy some of the same protections as trustees when it comes to potential attacks for actions taken during a bankruptcy case. Applying the Barton doctrine,… Continue Reading

Delaware Bankruptcy Court Limits Access to Emails in Cross-Border Bankruptcy Case

Posted in Bankruptcy
A recent decision by Judge Sontchi in the Bankruptcy Court for the District of Delaware casts some light on the methods that representatives of non-U.S. debtors can—and can’t—use to track down those who owe such debtors money. The Representatives of the Irish liquidation proceeding for Irish Bank Resolution Corporation Limited (“IBRC”) obtained recognition of the… Continue Reading

Bankruptcy Court Authorizes Hellas II Liquidators to Proceed with Claims against Apax, TPG and Others

Posted in Bankruptcy
Chadbourne & Parke LLP currently represents the English liquidators of Hellas Telecommunications (Luxembourg) II SCA, a company that formerly owned one of the largest mobile phone operators in Greece. On behalf of the English liquidators, in 2012 Chadbourne obtained an order from the US Bankruptcy Court from the Southern District of New York granting Chapter… Continue Reading

Narrow Means Narrow

Posted in Bankruptcy
On May 26, 2015, the Supreme Court of the United States (SCOTUS) decided Wellness International Network, Ltd. v. Sharif—another case addressing issues raised in the wake of the Court’s “narrow” Stern v. Marshall decision. While the case clarified some of the jurisdictional issues raised by litigants post-Stern, many issues remain and each Justice seems more… Continue Reading

In re Nobel Group, Inc.: Just Kidding–The Bankruptcy Court Doesn’t Really Have Jurisdiction After All

Posted in Bankruptcy
In Nobel Group, Inc. v. Cathay Bank (In re Nobel Group, Inc.), the Bankruptcy Court for the Northern District of California reviewed the scope of its jurisdiction post-confirmation and held that, notwithstanding plan provisions stating the contrary, the court did not have jurisdiction over the reorganized debtor’s claims asserted against its previously secured creditor.… Continue Reading

Non-Consensual Third-Party Releases: Eleventh Circuit Joins “Pro-Release” Majority

Posted in Bankruptcy
Circuit courts are divided as to whether provisions of a bankruptcy plan of reorganization may release a non-debtor from creditors’ claims over the objection of a non-consenting creditor (i.e. non-consensual third-party releases). A majority of courts will permit non-consensual third-party releases under certain limited circumstances. This issue has been in the news recently with speculation that… Continue Reading

Think You Have a “Good Faith, for Value” Defense? Value to Creditors is the Key!

Posted in Bankruptcy
Fraudulent transfer statutes were enacted to protect creditors from improper depletion of a debtor’s assets.  They generally accomplish this goal by allowing creditors (or a bankruptcy estate representative) to avoid transactions that are either actually or constructively fraudulent as to creditors, and to recover some or all of the proceeds of the transaction.  For example,… Continue Reading

“Deepening Insolvency” Staggers On

Posted in Bankruptcy
The Third Circuit Court of Appeals recently passed on a chance to join numerous other federal and state jurisdictions in rejecting “deepening insolvency” as an independent tort, leaving the doctrine weakened, but still technically viable in the significant bankruptcy arena. However, in In re Lemington Home for the Aged, the Court did strongly indicate that… Continue Reading

Don’t Forget to Object!

Posted in Bankruptcy
On January 23, 2015, the Eleventh Circuit recognized the res judicata effect of provisions contained in a bankruptcy plan of reorganization that released all claims against a third-party guarantor. In deciding In re FFS Data, Inc., the court examined (i) the plain language of the plan provisions to determine whether a particular claim was included… Continue Reading

Third Time’s the Charm: Supreme Court May Finally Clarify Bankruptcy Courts’ Power

Posted in Bankruptcy
On January 14, 2015, the Supreme Court of the United States heard oral argument in Wellness International Network, Limited v. Sharif, a case that gives SCOTUS the opportunity to finally clarify the constitutional limits of bankruptcy courts’ decision-making power raised by its 2011 decision in Stern v. Marshall. But as we saw with last year’s… Continue Reading

A Refresher on Constitutional Mootness and Its Application to Lift-Stay Motion Appeals

Posted in Bankruptcy
Constitutional mootness is a threshold question for determining whether a court has jurisdiction over an appeal. It arises from the “case or controversy” requirement under Article III of the U.S. Constitution – if no “case or controversy” exists for which the court may grant effective relief, the court lacks jurisdiction and must dismiss the appeal… Continue Reading

Determining the Cramdown Interest Rate: The Burden is on the Creditor

Posted in Bankruptcy
Following Judge Drain’s decision in Momentive, many in the bankruptcy world have written about and discussed the issue of how to determine the appropriate interest rate that should be paid to secured creditors in the context of a Chapter 11 cramdown (the so-called “cramdown interest rate”). While many questions have been asked and remain unanswered,… Continue Reading

Bubble Bursts on Former Dot-Com Millionaire Debtors Seeking to Subordinate Claim of Ex-Partner

Posted in Bankruptcy
Bankruptcy Code section 510(b) provides for mandatory subordination of any claims “arising from,” among other things, the purchase or sale of a security. It is an expansive provision that courts have interpreted broadly, causing some commentators to wonder: “Are there any limits to mandatory subordination under section 510(b)?” In a decision entered last week in… Continue Reading

Second Circuit Applies Safe Harbor to Protect Withdrawals Made by Madoff Customers

Posted in Bankruptcy
Focusing on the plain language provided in Bankruptcy Code section 546(e), the Court of Appeals for the Second Circuit this week held that customers of the now defunct Bernard Madoff Investment Securities LLC can retain funds they had withdrawn from their customer accounts before the Madoff firm was placed into liquidation.  Irving Picard, the trustee… Continue Reading

Lightsway Litigation Services, LLC v. Yung: A Further Study of Fiduciary Duties

Posted in Bankruptcy
Following up last week’s post on fiduciary duties, we review another bankruptcy decision, also in Delaware, that provides a good refresher on the fiduciary duties of directors and officers. In dismissing claims that officers and directors had breached fiduciary duties, the bankruptcy court in Lightsway Litigation Services, LLC v. Yung (In re Tropicana Entertainment, LLC)… Continue Reading

Gavin v. Tousignant: A Refresher on How Bankruptcy Courts Interpret Officers’ and Directors’ Duties

Posted in Bankruptcy
Corporate officers and directors who want to understand when a bankruptcy court may second-guess their decisions if their company fails need look no further than the Delaware bankruptcy court’s recent decision in Gavin v. Tousignant (In re Ultimate Escapes Holdings, LLC). Failed Business, Failed Merger Ultimate Escapes was formed in September 2009 to operate a… Continue Reading

Provisional Liquidators’ Proper Planning Enabled Chapter 15 Recognition

Posted in Bankruptcy
At times, United States courts have been reluctant to grant recognition to foreign proceedings involving offshore “exempted” companies under Chapter 15 of the Bankruptcy Code. For example, the United States Bankruptcy Court for the Southern District of New York denied a request for recognition of the Cayman Islands liquidation of certain Bear Stearns funds. Following… Continue Reading

Recharacterization: When Your “Loan” Becomes a “Capital Contribution”

Posted in Bankruptcy
Insiders who support their business enterprises in the form of loans should take comfort in a recent decision by the Bankruptcy Court for the Western District of Virginia in which the bankruptcy court declined to recharacterize a member’s loans to a limited liability company as capital contributions. Financial transactions in which an insider advances money… Continue Reading