Bankruptcy Law Commons^™

Is Your Retainer Safe?: How In Re Two Gales Ensures That Bankruptcy Professionals Keep Their Retainer Fees, Jonathan Abramovitz

Bankruptcy Research Library

(Excerpt)

In a decision that bankruptcy professionals are certain to applaud, the United States Bankruptcy Appellate Panel of the Sixth Circuit held that bankruptcy courts must not order disgorgement of attorneys’ retainers in bankruptcy cases if the attorney has perfected a lien in the retainer under state law. Prior to In re Two Gales, some bankruptcy courts had justified disgorgement as necessary to comply with 11 U.S.C. § 726(b), which requires administrative claimants to be compensated through pro rata distributions upon administrative insolvency. In re Two Gales confirmed what some other bankruptcy courts have already held: section 726(b) is …

Avoidability Of Foreclosure Sales Under Section 547 Of The Bankruptcy Code, Adam Cohen

Bankruptcy Research Library

(Excerpt)

Should foreclosure sales that comply with state law be subject to avoidance under federal bankruptcy law? In BFP v. Trust Resolution Corp., the Supreme Court said no, at least when dealing with alleged section 548 fraudulent conveyances, as doing so would, inter alia, undermine state interests and raise substantial federalism concerns. Some courts have taken this reasoning and applied it to section 547 preferences as well, while others feel that the plain language of section 547 prohibits such an application. One recent case in the latter category is In re Whittle Development, Inc.

In general, transfers are …

Three Approaches To Applying 11 U.S.C § 546(E)’S “Safe Harbor” To Private Lbos, Shlomo Lazar

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code gives a trustee and a debtor-in-possession the authority to avoid fraudulent transactions. However, 11 U.S.C. § 546(e) limits the trustee’s avoiding powers by providing a safe harbor for “settlement payments.” Generally, a “settlement payment” is a payment of cash or securities made to complete a securities transaction. For example, money that an individual pays to a stockbroker to buy publicly traded shares is a settlement payment. A recent issue that has arisen is whether payments made to former shareholders in connection with a private leveraged buyout (LBO) constitute a “settlement payment.”

Depending on which jurisdiction a …

Judicial Enforcement Of Default Interest Rates, Michael Lutfy

Bankruptcy Research Library

(Excerpt)

Although secured creditors use default interest rates to protect their security interest throughout the bankruptcy process, courts are not required to enforce those contractual provisions. Secured creditors can legitimately use default interest rates to provide an offset for the “costs and delay of the bankruptcy process.” Equitable considerations may require judicial nullification of default interest rates. Inequitable default interest rates directly contradict the policy goals of bankruptcy. The difficulty in determining the reasonableness of default interest rates results from competing policy interests within bankruptcy. Courts favor enforcing contractual obligations and preserving rights inside of bankruptcy, as they would have …

The Ponzi Scheme Presumption And Fraudulent Conveyances In The 21st Century: It’S Not Just Black And White, Gabriella B. Zahn

Bankruptcy Research Library

(Excerpt)

Section 548(a)(1)(A) of the Bankruptcy Code (the “Code”) allows the trustee of a bankruptcy estate to avoid a transfer made by the debtor “with actual intent to hinder, delay, or defraud” an entity to which the debtor was or became indebted, as long as the transfer was made within two years of filing. Because it is difficult to prove that a transfer was made with such actual intent, courts have applied the so-called “Ponzi scheme presumption.” In cases involving conveyances in Ponzi schemes, the “Ponzi scheme presumption” allows the court to assume that a transfer was made with the …

In Re J.J. Re–Bar Corp.: The Application Of The Anti-Injunction Act, Eric Dostal

Bankruptcy Research Library

(Excerpt)

The Anti–Injunction Act is a provision of the U.S Code that prohibits any court from impeding the Internal Revenue Service from collecting an assessed tax. The Circuits have applied the Anti–Injunction Act to bankruptcy proceedings in two different ways. When the IRS seeks to assess a tax against a corporate fiduciary of a bankrupt corporation, as when the IRS tries to collect a penalty associated with unpaid payroll taxes, the Circuits have held that the Anti–Injunction Act allows the IRS to collect the funds it is entitled to without any interference. However, when the IRS attempts to collect unpaid …

Bankruptcy Courts’ Power To Recharacterize Debt Claims As Equity, David Saponara

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code enables bankruptcy courts to take certain measures to facilitate the claims process and priority system. For example, section 502(b)(1) enables bankruptcy courts, upon objection, to disallow creditors’ claims based on applicable law or an agreement between the creditor and the debtor, and section 510(c) enables bankruptcy courts to equitably subordinate claims of creditors that engaged in inequitable conduct such that subordination would be appropriate to remedy any injury suffered by another creditor. Whether bankruptcy courts may recharacterize debt claims as equity, however, is not explicitly addressed in the Bankruptcy Code. Because of this, recharacterization analysis has …

Discrimination In Hiring Based On Past Bankruptcy Filing Allowed For Private Employers, Megan Quail

Bankruptcy Research Library

(Excerpt)

Section 525 of the Bankruptcy Code protects employees who currently are or have previously been in bankruptcy from discrimination. It contains two subsections. Subsection (a) states that government employers may not deny employment to, terminate the employment of, or discriminate with respect to employment against a person who has filed bankruptcy solely because of that filing. Subsection (b) provides that no private employer “may terminate the employment of, or discriminate with respect to employment against” individuals for declaring bankruptcy. The salient difference is that the section applying to private employers does not mention denial of employment in its list …

Forward Contracts Preference Exception Broadly Construed, Brian King

Bankruptcy Research Library

(Excerpt)

Derivative transactions and financial contracts are a critical component of the United States economy. There are three main types of derivative contracts executed in our markets: futures, options and forward contracts. Each of these instruments derives value from an underlying security or resource with focus on a possible change in its future value. These instruments can be used as speculative investments, as hedges on securities already owned, or as a means of mitigating risk on volatility within a specific industry. An essential attribute of trading in these derivatives is “the ability of the parties to value their transaction on …

A Casus Omissus In Preventing Bankruptcy Fraud: Ordering A Search Of A Debtor’S Home, 73 Ohio State Law Journal 93 (2012)., Michael D. Sousa

Sturm College of Law: Faculty Scholarship

Most individual debtors file for bankruptcy relief with honest intentions. Nonetheless, there is also an underside to the American bankruptcy law system that often goes unreported and ignored in the scholarly literature, namely, the commission of fraud by debtors who seek protection under the Bankruptcy Code. One of the ways in which fraud upon the bankruptcy system occurs is when debtors intentionally conceal assets from the bankruptcy process. Indeed, reported bankruptcy court decisions are rife with examples of debtors attempting to hide or shield assets from their creditors. Debtors who are discovered concealing assets are subject to certain civil remedies, …

Business Insolvency And The Irish Debt Crisis, 11 Rich. J. Global L. & Bus. 407 (2012), Paul B. Lewis

UIC Law Open Access Faculty Scholarship

Among the volume of material written about the Irish debt crisis and its impact over the past few years, strikingly little has been written about the ability to save a financially distressed company under Irish law and whether corporate restructuring could have mitigated some of the financial damage to Irish companies, particularly those in the property and construction industries. There is a reason for this. The number of filings under the Examinership law - the rough equivalent of Chapter 11 in the United States - remained small and relatively constant during both the recent boom and the more immediate bust …

The Structural Exceptionalism Of Bankruptcy Administration, Rafael I. Pardo, Kathryn A. Watts

Articles

The current system of administration of the Bankruptcy Code is highly anomalous. It stands as one of the few major federal civil statutory regimes administered almost exclusively through adjudication in the courts—not through a federal regulatory agency. This means that rather than fitting bankruptcy into a regulatory model, the U.S. Congress has chosen to give the courts primary interpretive authority in the field of bankruptcy, delegating to courts the power to engage in residual policymaking.

Although scholars have noted some narrow aspects of the structural exceptionalism of bankruptcy administration, Congress’s decision to locate responsibility for bankruptcy policymaking almost exclusively with …

Student Loans, Politics, And The Occupy Movement: Financial Aid Rebellion And Reform, 46 J. Marshall L. Rev. 105 (2012), Kamille Wolff Dean

UIC Law Review

No abstract provided.

Business Insolvency And The Irish Debt Crisis, Paul B. Lewis

Richmond Journal of Global Law & Business

No abstract provided.

Considerations For Private Equity Firms When Utilizing Chapter 11 New Value Deals, Alexandra Wilde

Michigan Business & Entrepreneurial Law Review

The new value exception to the Chapter 11 absolute priority rule provides a narrow avenue for equity holders to retain an equity interest in a reorganized company over the objections of senior creditors and interest holders. With the increasing number of Chapter 11 reorganization filings by private equity owned companies, private equity firms may be interested in exploring ways to retain their equity ownership in the debtor company. This Note explores the unique implications a private equity firm may encounter when attempting to utilize the new value exception as a last resort to maintain ownership in a debtor company. Part …

William Edwin Lindsey, Lida Griest, Chris Inklebarger, Sydney Koch

Chapter 11 Bankruptcy Case Studies

No abstract provided.

What We “Know” About Chapter 11 Cost Is Wrong, Stephen J. Lubben

Fordham Journal of Corporate & Financial Law

Among the collective wisdom about large corporate bankruptcy cases, the following points are almost undisputed: Longer chapter 11 cases cost more; prepackaged chapter 11 cases cost less; cases filed in New York or Delaware cost more; and fee examiners control the costs of big chapter 11 cases. But each of these points is wrong, and in most cases entirely backward. This Article provides empirical evidence to show why. Ultimately, I argue that the complexity of the bankruptcy and the compensation structure of the professionals retained (which may itself reflect further aspects of complexity) are the key determinants of cost. The …

Chapter 11 Reorganization And The Fair And Equitable Standard: How The Absolute Priority Rule Applies To All Nonprofit Entities, Pamela Foohey

Scholarly Works

In recent years, nonprofit entities increasingly have sought bankruptcy protection. Though the Bankruptcy Code does not prevent nonprofits from reorganizing, Chapter 11 was designed for and applies best to for-profit businesses. This creates challenges for courts evaluating a nonprofit’s reorganization plan. This Article focuses on one crucial aspect of a court’s evaluation — the fair and equitable standard, a necessary, but not sufficient condition of which is satisfaction of the absolute priority rule.

The few courts addressing absolute priority claims in nonprofit reorganizations have held that the rule is categorically inapplicable to nonprofit entities except in limited circumstances. These courts …

Still Solvent: The Third Circuit Continues To Support "Deepening Insolvency" As A Viable Tort Claim In In Re Lemington Home For The Aged, Eric Kim

Villanova Law Review (1956 - )

No abstract provided.

Consumer Bankruptcy Policy: Ability To Pay And Catholic Social Teaching, Richard E. Flint

Faculty Articles

An essay is presented on consumer bankruptcy policy in the U.S. It informs about the significant changes in the consumer bankruptcy introduced by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 including incorporation of an ability-to-pay test as a requirement for getting the benefits of the act. It reviews the Catholic social teaching related to the interrelationship between the dignity of man and his rights and duties to promote justice and the common good.