The scope of the Bankruptcy Code's "safe harbor" shielding certain securities, commodity, or forward-contract payments from avoidance as fraudulent transfers has long been a magnet for controversy, particularly after the U.S. Supreme Court suggested (but did not hold) in Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct.
Alice Belisle Eaton and Billy Clareman Discuss Latest Restructuring
Developments at PLI Event
Practising Law Institute’s “Recent Developments in Distressed Debt, Restructurings,
and Workouts 2024” featured restructuring partner Alice Belisle Eaton and
litigation partner Billy Clareman. Co-chair Alice delivered opening remarks and
spoke on “Market Update: Distressed Debt and Restructurings,” “Corporate
Governance, Officer and Director Risks and Claims in Distressed Situations” and
You can’t make this stuff up. The legal issues are pedestrian. But the facts behind those issues are incredible!
Litigation History
Here’s the boring stuff first.
On January 8, 2024, the U.S. Supreme Court denies certiorari in Mann v. LSQ Funding Group, L.C. (Case No. 23-425). Here’s the procedural background:
What Happened
The debt purchaser in In re McIntosh argued that because it was enforcing a debt that was not listed correctly on the debtor’s bankruptcy schedules, it was entitled to assume the debt had not been discharged. The U.S.
Under the Absolute Priority Rule, for a Chapter 11 plan to be confirmable, claims of a higher priority must be paid in full in order for lower priority claims to receive any recovery, and all creditors must be paid in full in order for equity interest holders to retain any interest in the debtor, or receive any distribution under the plan. The Absolute Priority Rule is embodied in Section 1129(b)(2) of the Bankruptcy Code.
In a landmark decision,[1] the Delaware Court of Chancery addressed, for the first time, the precise duties that a controlling stockholder owes, and the standard of review that will apply, when a controlling stockholder takes actions to block a board of directors’ desired course of action — such as by removing directors or enacting a bylaw requiring a unanimous vote for board action
On January 2, the Consumer Financial Protection Bureau (CFPB) filed an amicus curiae brief urging the U.S. Court of Appeals for the First Circuit to reverse a district court’s decision finding that a debt collector lacked the requisite knowledge and intent to violate the Fair Debt Collection Practices Act (FDCPA) when it sent a debt-collection communication prior to any knowledge of the debtor’s bankruptcy filing.
Oral arguments happened on January 9, 2024, at the U.S. Supreme Court in U.S.Trustee v. Hammons.Here is a link to the transcript of those arguments.
The Hammons question is this:
You ship goods to a customer that is having financial difficulties. The customer sends you a check for the goods. What do you do?
Cash it and potentially be sued for a preference after the customer files for bankruptcy
or
Don’t cash it, and have a claim in the ensuing bankruptcy