Introduction
Introduction
This article is for non-bankruptcy attorneys who have clients that may become involved in a bankruptcy case because they sold goods to a party that subsequently filed bankruptcy (a “debtor”). Accordingly, this article discusses, among other things, factors influencing whether trade creditors should become actively involved in a bankruptcy and the remedies available to trade creditors in bankruptcy.
I. Who Is A Trade Creditor
The United States Supreme Court recently ruled in Stern v. Marshall1 that a bankruptcy court lacks constitutional authority to render a final judgment on a bankruptcy estate’s counterclaim against a creditor based on state common law, despite an express statutory grant of jurisdiction. This ruling is the most significant decision regarding bankruptcy court jurisdiction since the Court’s 1982 decision in Northern Pipeline v. Marathon2 and it could significantly affect the administration of bankruptcy cases.
Root of the Constitutional Problem
The Federal Deposit Insurance Corporation (“FDIC”) has approved a final rule authorizing it to clawback any compensation senior executives and directors received within two years of the FDIC being appointed receiver, if the FDIC finds they were “substantially responsible” for the failed condition of a covered financial company. Of particular concern, the rule (implementing section 210(s) of the Dodd-Frank Act):
During her lifetime, Vickie Lynn Marshall, publicly known as Anna Nicole Smith (“Vickie”), was hardly a stranger to the prying eyes of the media. Today, the late Vickie is again the subject of media coverage, this time in the context of a fifteen-year legal saga that has twice reached the United States Supreme Court.
The US Court of Appeals for the Second Circuit recently held that redemptions of commercial paper made through the Depositary Trust Company (DTC) are entitled to the “safe harbor” protections afforded to settlement payments under Bankruptcy Code Section 546(e), and are, therefore, not preferential transfers, even though such payments were made prior to maturity.1 The Second Circuit is the first Circuit Court of Appeal to address the issue, which arises out of the Enron bankruptcy case.
Legal Framework
Since it was issued three years ago by the Ninth Circuit Bankruptcy Appellate Panel, the Clear Channel decision (Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. B.A.P. 2008)) has been widely criticized as “an aberration in well-settled bankruptcy jurisprudence.” Before Clear Channel, conventional wisdom (and what most people perceived to be the law) supported the notion that a bankruptcy sale order that contained a good faith finding under Section 363(m) could not be disturbed on appeal.
A consortium uniting Apple, Inc. and Microsoft with other top players in the software, electronics and wireless handset industries outplayed Google in a bankruptcy court auction for Nortel’s patent portfolio, posting a winning offer of $4.5 billion for the trove of 6,000 patents that cover fourth-generation wireless, data networking, Internet, and semiconductor technologies.
At a time when municipalities face historic fiscal challenges, the Commonwealth budget for fiscal year 2012 temporarily deprives Pennsylvania’s third-class cities of a useful tool for negotiating with creditors.