Attorneys who advise a distressed company usually work very closely with members of the board of directors. A recent opinion from the United States District Court for the Western District of Texas provides a cautionary reminder to such attorneys not to lose sight of the fact that, notwithstanding that the company acts through its board, the attorneys’ duties are to the company and not to the individual board members. And, losing focus on the source of the attorneys’ duties may result in exposure to significant liability.

Last month, the Eleventh Circuit Court of Appeals clarified the circumstances under which a creditor can assert a “new value” defense to a preference action under section 547(c)(4) of the Bankruptcy Code—rejecting as dictum language in a prior decision indicating that the new value provided needed to remain unpaid in order to setoff against preference payments. The Eleventh Circuit’s decision also had the effect of narrowing a split among the circuits.

The Background

On September 22, 2017, the First Circuit Court of Appeals reversed the district court, and overruled its own prior guidance, to hold that a committee of unsecured creditors had the right to be heard in adversary proceedings related to the restructuring of Puerto Rico’s debt. The Court’s decision in Assured Guar. Corp. v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd.

In its fifth trip to the Seventh Circuit Court of Appeals, the Sentinel Management Group’s bankruptcy case recently explored complex issues bankruptcy practitioners often encounter in large chapter 11 cases with financial services debtors.

On July 6-7, 2017, Craig Jalbert, in his capacity as Trustee for F2 Liquidating Trust, filed approximately 187 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548 and 550 of the Bankruptcy Code (depending on the nature of the claims). In certain instances, the Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

On June 15, 2017, Curtis R. Smith, as Liquidating Trustee of the Hastings Creditors’ Liquidating Trust, filed approximately 69 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548 and 550 of the Bankruptcy Code. The Liquidating Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

On June 13, 2017, The Original Soupman, Inc. and its affiliates (collectively “Debtors” or “Original Soupman”) commenced voluntary bankruptcy proceedings under Chapter 11 of the Bankruptcy Code. According to its petition, Original Soupman estimates that its assets are between $1 million and $10 million, and its liabilities are between $10 million and $50 million.

On May 17, 2017, GulfMark Offshore, Inc. (“GulfMark” or “Debtor”) filed a voluntary petition for bankruptcy relief under chapter 11 of the Bankruptcy Code in the United States District Court for the District of Delaware.

Starting on April 28, 2017, Craig R. Jalbert, as Distribution Trustee of the Corinthian Distribution Trust, filed approximately 122 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548, 549 and and 550 of the Bankruptcy Code (depending upon the nature of the underlying transactions). The Distribution Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

This Monday, the U.S. Supreme Court rejected General Motors’ petition for a writ of certiorari, which GM filed in an attempt to overturn a ruling by the Second Circuit Court of Appeals related to the sale of substantially all of GM’s assets in bankruptcy. When we last visited the case in a prior blog post, GM’s petition to the Supreme Court was still pending.