The Supreme Court issued its much-anticipated ruling yesterday in the First Circuit case of Mission Product Holdings, Inc. v. Tempnology, LLC, resolving a circuit split that had developed on “whether [a] debtor‑licensor’s rejection of an [executory trademark licensing agreement] deprives the licensee of its rights to use the trademark.” And it answered that question in the negative; i.e., in favor of licensees.
When it comes to offsets, bankruptcy law provides for two distinct remedies: (1) setoff and (2) recoupment.
Setoff allows a creditor to reduce the amount of prepetition debt it owes a debtor with a corresponding reduction of that creditor’s prepetition claim against the debtor. The remedy of setoff is subject to the automatic stay, as well as various conditions under § 553 of the Bankruptcy Code — including that it does not apply if the debts arise on opposite sides of the date on which the debtor’s case was commenced.
Affirming the bankruptcy court below in a case of first impression, in In re Caviata Attached Homes, LLC, 481 B.R. 34 (B.A.P. 9th Cir. 2012), a Ninth Circuit bankruptcy appellate panel held that a relapse into economic recession following a chapter 11 debtor’s emergence from bankruptcy was not an “extraordinary circumstance” that would justify the filing of a new chapter 11 case for the purpose of modifying the debtor’s previously confirmed plan of reorganization.
Modification of a Confirmed Chapter 11 Plan
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