In the case involving Precision Business Consulting LLC (Precision) and debtor-appellee Jill Suzann Medley, the U.S. Court of Appeals for the Ninth Circuit delivered a decisive opinion that sheds light on the treatment of factoring companies as lenders within the context of bankruptcy proceedings. This analysis emerges from Precision’s appeal against a civil contempt order for its willful violation of the automatic stay provision under 11 U.S.C. § 362, operational during Medley’s Chapter 13 bankruptcy petition.
A common defense to a fraudulent transfer claim in bankruptcy concerning a securities transaction is the “safe harbor” defense under section 546(e) of the Bankruptcy Code. In a unique twist, a post-confirmation trust in Delaware recently argued that the safe harbor defense should not be available if the underlying transaction was illegal under the law where the debtor/transferor was incorporated.
This is the second in a series of four articles on why Fed.R.Bankr.P. 9031, titled “Masters Not Authorized,” needs to be amended to authorize the utilization of special masters in complex bankruptcy cases.
The focus of this second article is on how the exclusion of special masters from bankruptcy cases: (i) is without a sound reason, and (ii) is based on a history of haste and uncertainty.[Fn. 1]
Bankruptcy Rule 9031—The Prohibition
In Short
The Fifth Circuit recently ruled that a debtor can sell a preferential transfer action under Bankruptcy Code section 363 to a purchaser that is not a representative of the bankruptcy estate. Briar Cap. Working Fund Cap., L.L.C. v. Remmert (In re S. Coast Supply Co.), No. 22-20536, 2024 U.S. App. LEXIS 1417 (5th Cir. Jan. 22, 2024).
This is the first in a series of four articles on why Fed.R.Bankr.P. 9031, titled “Masters Not Authorized,” needs to be amended to authorize the utilization of special masters in complex bankruptcy cases.
The focus of this first article is on how special masters are already utilized, effectively, by federal district courts under Fed.R.Civ.P. 53 (titled, “Masters”).[Fn. 1]
Special Masters in Federal Courts
–A Brief History
There are two mechanisms through which a creditor may net amounts owed to the debtor against amounts owed by the debtor -- setoff and recoupment. These mechanisms are distinct and are treated very differently in a bankruptcy setting.
Key Issues
Setoff. Setoff is a right based in state law that allows parties to apply their mutual debts against each other. These rights are preserved in bankruptcy through Section 553(a) of the Bankruptcy Code, which does not create any federal right of setoff, but leaves such state law rights undisturbed.
It is a rare occasion that one can be assured with certainty that, if they file a motion with a bankruptcy court, it will be granted. But, in the Third Circuit, that is exactly what will happen if a creditor or other party in interest moves for an examiner to be appointed under Section 1104(c) of the Bankruptcy Code. Once considered to be within the discretion of a bankruptcy court “as is appropriate,” the appointment of an examiner is now guaranteed if the statutory predicates are fulfilled according to the Third Circuit Court of Appeals.
In one of the most highly anticipated judgments in the European restructuring market in recent years, on 23 January 2024, the English Court of Appeal overturned the High Court’s decision sanctioning the Adler restructuring plan.1
When leveraged buyouts (“LBOs”) fail, the selling shareholders are litigation targets. A common suit is a claim by a bankruptcy trustee asserting constructive fraudulent transfer claims seeking to claw-back payments to the selling shareholders from the loan proceeds that financed the LBO.