The ability to avoid fraudulent or preferential transfers is a fundamental part of U.S. bankruptcy law. However, when a transfer by a U.S. entity takes place outside the U.S. to a non-U.S. transferee—as is increasingly common in the global economy—courts disagree as to whether the Bankruptcy Code’s avoidance provisions apply extraterritorially to avoid the transfer and recover the transferred assets. A pair of bankruptcy court rulings handed down in 2017 widened a rift among the courts on this issue.

The ability to avoid fraudulent or preferential transfers is a fundamental part of U.S. bankruptcy law. However, when a transfer by a U.S. entity takes place outside the U.S. to a non-U.S. transferee—as is increasingly common in the global economy—courts disagree as to whether the Bankruptcy Code’s avoidance provisions can apply extraterritorially to avoid the transfer and recover the transferred assets. A ruling recently handed down by the U.S. Bankruptcy Court for the Southern District of New York widens a rift among the courts on this issue. In Spizz v. Goldfarb Seligman & Co.

With one exception, the Top 10 List of "public company" (defined as a company with publicly traded stock or debt) bankruptcies of 2016 consisted entirely of energy companies—solar, coal, and oil and gas producers—reflecting, as in 2015, the dire straits of those sectors caused by weakened worldwide demand and, until their December turnaround, plummeting oil prices. The exception came from the airline industry. Each company gracing the Top 10 List for 2016 entered bankruptcy with assets valued at more than $3 billion.

Puerto Rico Oversight, Management, and Economic Stability Act

The watchword for 2016 in much of the world was "upheaval." Two unanticipated events dominated the political, business, and financial headlines of 2016, at least in Europe and the Americas: the Brexit referendum result and the election of Donald J .Trump as the 45th President of the United States. The refugee crisis, the commodities meltdown, Brazil’s economic collapse, China’s growing pains, Russian belligerency and alleged cyber-meddling in the U.S. election, the war on terrorism, and the beginning of the end of the bloody Syrian civil war seemed to pale by comparison.

The Supreme Court again will be addressing the powers of bankruptcy courts. At the end of the term, the Court granted certiorari in Czyzewski v. Jevic Holding Corp. to decide whether a bankruptcy court may authorize the distribution of settlement proceeds in a way that violates the statutory priority scheme in the Bankruptcy Code. No. 15-649, 2016 WL 3496769 (S. Ct. June 28, 2016). The Supreme Court is expected to address this fundamental bankruptcy issue sometime early next year.

Background

One of the goals of the Bankruptcy Code is to provide a debtor with a fresh start. The discharge of prepetition debts at the conclusion of a bankruptcy case is one of the most important ways to attain this fresh start.  On May 16, 2016, the Supreme Court made it harder for debtors to obtain a fresh start by broadening an exception to discharge.

Earlier this year, we covered Judge Shelley Chapman’s ruling in the Sabine bankruptcy, permitting the Debtors to reject a handful of gathering and other midstream agreements. Previously, Judge Chapman permitted rejection on the grounds that the Debtors exercised their reasonable business judgement in doing so.

The world’s second-largest economy (China) stumbled; Japan receded; the U.K. showed signs of life; the war-torn Middle East reeled; oil revenue-dependent Russia, Brazil, and Venezuela took body blows; and the European Union exhaled after narrowly avoiding Grexit (and possibly Brexit), only to confront a refugee crisis of alarming (and expensive) proportions, as well as a demonstrated terrorist threat from the self-proclaimed Islamic State.

A Good Year for the U.S.

Section 105(a) of the Bankruptcy Code provides that a bankruptcy court “may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a).  In the Caesars bankruptcy, the Seventh Circuit explored the breadth of a court’s rights to take action under this section.  The Seventh Circuit held that section 105(a) permits the Bankruptcy Court to issue an injunction with respect to litigation pending against the debtors’ non-debtor parent.