On April 19, 2023, the U.S. Supreme Court issued its opinion inMOAC Mall Holdings LLC v. Transform Holdco LLC, 598 U.S. (2023), reversing the Second Circuit decision and determining that the limitations on appeals of bankruptcy sale orders provided in section 363(m) of the Bankruptcy Code are not jurisdictional. Rather section 363(m) merely provides a "caveated constraint" on the appellant’s remedies on such appeals.
On June 27, 2022, the U.S. Supreme Court granted certiorari inMOAC Mall Holdings LLC v. Transform Holdco LLC (21-1270) to resolve a Circuit split over whether section 363(m) of the Bankruptcy Code limits appellate jurisdiction over bankruptcy sale orders or simply limits the appellant’s remedies on such appeals. Given the now decades-long trend toward resolving Chapter 11 cases through asset sales, including assignments of leases and contracts, the Supreme Court’s decision may provide clarity to a vitally important part of modern Chapter 11 practice.
Agricultural economists have long warned of a looming farm crisis. However, for the most part, they have been wrong. In 2021, nationwide Chapter 12 family farmer bankruptcy filings were at second lowest level since Chapter 12 was enacted in 1987. The low level of Chapter 12 filings is all the more surprising given that Congress more than doubled the debt limit for Chapter 12 eligibility (to $10 million) in 2019.
A newly created subsidiary of Johnson & Johnson recently filed Chapter 11 to manage 38,000 pending talc-related lawsuits and future talc-related claims. There is nothing especially new about using Chapter 11 to deal with mass tort litigation. In the past three decades, thousands of companies, dozens of religious organizations, and even the Boy Scouts of America have filed Chapter 11 because of mass tort claims.
Congress originally conceived the new Subchapter V to “streamline the bankruptcy process by which small business debtors reorganize and rehabilitate their financial affairs.” The new Subchapter became effective on February 19, 2020, and the COVID-19 pandemic began in earnest less than a month later. The pandemic caused Congress to almost triple the Subchapter V debt limit from approximately $2.7 million to $7.5 million. However, the increased debt limit will expire in March 2022 if Congress does not act to extend it.
On December 27, 2020, the Consolidated Appropriation Act ("CAA") was signed into law. The nearly 5,600-page bill is reportedly the longest bill ever passed by Congress. In addition to funding the federal government in 2021 and providing COVID-related relief to individuals and businesses, the new law amends the Bankruptcy Code in at least nine respects. Most of the amendments sunset in either one or two years. One of the amendments will become effective only if the Small Business Administration signs off on it.
A brief description of the amendments follows.
On November 12, 2019, the First Circuit Court of Appeals ruled that bankruptcy trustees may sue colleges and universities to recover pre-bankruptcy tuition payments received from parents of adult children. This is the first case decided by a court of appeals on an issue that has divided the lower courts for several years.
The President signed legislation on August 23, 2019 modifying the Bankruptcy Code in several respects. Here are the four biggest takeaways.
Help for the preference recipient
Almost all businesses have either received a letter from a bankruptcy trustee or have been sued by the trustee for the repayment of sums they received from their customer within 90 days of the customer’s bankruptcy filing. The recipient has several affirmative defenses to return of these so-called “preference” payments that may reduce, or even eliminate, the amount that must be repaid.
On May 20, 2019, the U.S. Supreme ruled a trademark licensee can continue to use the trademark after a bankrupt licensor rejects the license agreement. The case is Mission Product Holdings, Inc. v. Tempnology, LLC. Some lower courts had ruled that rejection of trademark license agreement terminated the licensee’s rights to use the trademark.
In a recent decision, the U.S. Bankruptcy Court in the Northern District of Illinois strictly enforced a subordination agreement to prevent the junior lienholder from even obtaining discovery from the senior creditor. In re Argon Credit, LLC, slip. op. (Bankr. N.D. Il. January 10, 2019).