A ruling handed down by the Third Circuit Court of Appeals on November 15, 2013, adds yet another chapter to the ongoing controversy concerning whether sold or assigned claims can be subject to disallowance under section 502(d) of the Bankruptcy Code on the basis of the seller’s receipt of a voidable transfer. The decision—In re KB Toys Inc., 2013 WL 6038248 (3d Cir. Nov. 15, 2013)—is an unwelcome missive for claims traders. For the first time since the enactment of the Bankruptcy Code in 1978, a circuit court of appeals has concluded that:

InGrayson Consulting, Inc. v. Wachovia Securities, LLC (In re Derivium Capital LLC), 716 F.3d 355 (4th Cir. 2013), the U.S. Court of Appeals for the Fourth Circuit examined whether certain securities transferred and payments made during the course of a Ponzi scheme could be avoided as fraudulent transfers under sections 544 and 548 of the Bankruptcy Code. The court upheld a judgment denying avoidance of pre-bankruptcy transfers of securities because the debtor did not have an “interest” in the securities at the time of the transfers.

Section 553 of the Bankruptcy Code provides, subject to certain exceptions, that the Bankruptcy Code “does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case.” Debts are considered “mutual” when they are due to and from the same persons or entities in the same capacity.

Few areas of law are as confusing—or as important to understand—as the growing
intersection of employment and bankruptcy law. In recent years, funding shortfalls
in multi-employer pension plans, which cover roughly 20 percent of U.S. workers
with defined-benefit plans, have increased pressure on participating employers
to reduce their contributions or even withdraw entirely. Although employers taking
these actions would incur withdrawal liability as a consequence, that liability can

Commercial landlords hailed as a significant victory the enactment in 2005 of a 210-day “drop dead” period after which a lease of nonresidential real property with respect to which the debtor is the lessee is deemed rejected unless, prior to the expiration of the period, a chapter 11 debtor in possession (“DIP”) or bankruptcy trustee assumes or rejects the lease.

Section 552(b)(2) of the Bankruptcy Code provides that if a creditor prior to bankruptcy obtained a security interest in rents paid to the debtor, that security interest extends to postpetition rents to the extent provided in the security agreement. Courts have disagreed, however, on the question of whether the debtor must provide adequate protection with respect to such postpetition rents. The resolution of this issue typically determines whether the debtor may use a portion of the postpetition rents that it receives to fund the administrative costs of its bankruptcy.

A judgment creditor who is considering filing an involuntary bankruptcy petition against a debtor should consult venue-specific controlling law if the debtor has appealed the judgment. Depending on the jurisdiction, the debtor’s appeal may or may not be a factor for the bankruptcy court to consider in determining whether the creditor’s claim meets the involuntary petition requirements of the Bankruptcy Code.

Unlike in cases filed under other chapters of the Bankruptcy Code, the filing of a petition for recognition of a foreign bankruptcy or insolvency case under chapter 15 does not automatically trigger a stay of actions against a debtor or its U.S. assets. Instead, the automatic stay generally applies only at such time that the U.S.

A long-standing legal principle is that liens pass through bankruptcy unaffected. Like every general rule, however, this tenet has exceptions.

Following the culmination of two public comment periods spanning more than a year, the Office of the United States Trustee, a unit of the U.S. Department of Justice (the “DOJ”) assigned to oversee bankruptcy cases, issued new final guidelines on June 11 governing the payment of attorneys’ fees and expenses in large chapter 11 cases—cases with $50 million or more in assets and $50 million or more in liabilities.