Your business now faces an adversary complaint filed by the bankruptcy trustee. The complaint has several counts alleging that your business received fraudulent transfers of assets from a debtor in bankruptcy. The complaint alleges two types of fraudulent transfers. The first is actual fraud, which involves a debtor’s intent to delay, hinder, or defraud its creditors. The second is referred to as constructive fraud, which involves a debtor’s transfer of assets made in exchange for inadequate consideration.

Type of Transferee

The Eleventh Circuit recently reaffirmed the “person aggrieved” doctrine in In re Petricca, 17-10325, 2018 WL 1020046, at *1 (11th Cir. Feb. 22, 2018). The person aggrieved doctrine provides that a person may appeal from a bankruptcy court’s order only if he is a person aggrieved by the order. The doctrine limits the right to appeal a bankruptcy court order to those parties having a direct and substantial interest in the question being appealed.

Often, when businesses fail, they end up either in bankruptcy court as a chapter 7 debtor or in a state court liquidation proceeding such as an assignment for the benefit of creditors. In these instances, a fiduciary is appointed to wind-down the affairs of the business, liquidate assets, and pay allowed claims. In many situations the fiduciary is left with records which are either incomplete or in disarray and little money to pay the costs of administration. One often overlooked asset for easy recovery can be unclaimed funds.

Although it has been over ten years since a hurricane made landfall in Florida, now is the time for those involved in bankruptcy filings to consider the impact a hurricane can have on proceedings and take the necessary steps to avoid getting caught in a storm of financial disarray.

On May 16, 2016, the United States Supreme Court decided the term “actual fraud” in Bankruptcy Code § 523(a)(2)(A) encompasses forms of fraud, like fraudulent conveyance schemes, that can be effected without a false representation by a debtor. Importantly, the Husky International Electronics, Inc. v. Ritz, No. 15-145, 2016 WL 2842452 (U.S. May 16, 2016) opinion clears up a split among the lower courts on the question of whether the phrase “actual fraud” requires a false representation to be made to a creditor.

A commercial landlord’s failure to terminate properly a commercial lease can lead to long drawn-out legal battles between the commercial landlord and tenant, before and after the tenant files for chapter 11 bankruptcy protection.  In particular, a commercial landlord’s failure to elect and effectively pursue its remedy of lease termination may preclude any subsequent action in bankruptcy to gain possession of the premises even after a writ of possession has issued.

When a chapter 11 plan of reorganization contains no provision that allows for the full debt to be collected in the event of a debtor’s nonpayment, the creditor’s obligation cannot be accelerated under Florida law absent an acceleration provision. The recent case of Baggett Bros. Farm, Inc. v. Altha Farmers Co-op., Inc., No. 1D:13-4200, 39 Fla. L. Weekly D2127, 2014 WL 5033350 (Fla. 1st DCA Oct. 9, 2014), reh’g denied (Nov. 7, 2014) highlights this point.

In large chapter 11 cases, millions of dollars often hinge on the appropriate interest rate. Chapter 11 debtors may not require impaired secured creditors to accept a proposed plan of reorganization unless the plan provides that secured creditors will receive future payments that are equivalent to the value of the creditors’ secured claims.  In order to satisfy this requirement, a debtor must propose an interest rate that will compensate these creditors for receiving deferred cash payments in lieu of a lump sum.

Your business receives payment for goods or services that your business provided to a customer (“XYZ Inc.”). Your business is paid from the customer’s corporate account. You know that the payment came from XYZ Inc.’s corporate account because the check or credit card used for payment is in the name of XYZ Inc. However, three years later, you receive a letter from the “trustee” of XYZ Inc., now a debtor in bankruptcy, demanding payment of the money your business received for having provided goods or services to XYZ Inc.