Suppliers of good and services (“trade creditors”) generally have no duty to determine whether their customers are operating an illegal enterprise. However a recent Fifth Circuit opinion presents an unprecedented “claw-back” risk facing trade creditors who unknowingly provide goods and services to a “Ponzi-scheme” enterprise.

The Janvey Opinion

After more than two years of study on what needs fixing, the ABI Reform Commission proposed hundreds of discrete recommendations on refurbishing the Bankruptcy Code. The 396 page report addresses a wide variety of topics, from modifying the rights of secured lenders in large corporate workouts to creating a viable restructuring path for small businesses.

The legal principles governing corporate finance are often complex. Sometimes, however, the simplest of errors can be the most costly. Such was the case with a large syndicated secured loan made to General Motors. Due to a simple filing error, what had always been intended by the lender and borrower to be a secured loan will be treated as unsecured.

The Second Circuit Opinion in Motors Liquidation

On March 15, 2012, the American Bar Association’s Electronic Discovery (ESI) in Bankruptcy Working Group (the “Working Group”) published an interim report addressing certain principles and suggested best practices for electronic discovery in bankruptcy cases (the “Interim Report”). The Working Group was formed to study and prepare guidelines or a “best practices” report on the scope and timing of a party’s obligation to preserve ESI in bankruptcy cases.