A discharge of debt in bankruptcy “operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor. . . .” 11 U.S.C. § 524(a)(2). Certain debts, however, including debts “for violation of . . . any of the State securities laws,” are not subject to discharge. See 11 U.S.C. § 523(a)(19). A discharge injunction does not bar the collection of such debts.

Section 365(h) of the Bankruptcy Code provides special protection for tenants if a trustee or chapter 11 debtor-in-possession ("DIP") rejects an unexpired lease under which the debtor was the lessor by giving the tenant the option of retaining possession of the leased premises. Although the provision clearly describes what rights a tenant has if it makes such an election, it does not unequivocally address the extent of the electing tenant's obligations under the rejected lease or any related agreements. The U.S.

The ability of a bankruptcy trustee or chapter 11 debtor-in-possession ("DIP") to avoid fraudulent transfers is an important tool promoting the bankruptcy policies of equality of distribution among creditors and maximizing the property included in the estate.

We have blogged previously about section 546(e), the Bankruptcy Code’s safe harbor for certain transfers otherwise subject to avoidance as preferences or fraudulent transfers. See 11 U.S.C. § 546(e). Among the transfers protected by the section 546(e) safe harbor are transfers by or to a “financial participant” made “in connection with a securities contract.” Id.

The ability of a bankruptcy trustee or chapter 11 debtor-in-possession ("DIP") to obtain credit or financing during the course of a bankruptcy case is often crucial to the debtor's prospects for either maintaining operations pending the development of a confirmable plan of reorganization or facilitating an orderly liquidation designed to maximize asset values for the benefit of all stakeholders. In a chapter 11 case, financing (and/or cash infusions through recapitalization) also is often a key component of the reorganized debtor's ability to operate post-bankruptcy.

The Bankruptcy Code enables a trustee to set aside certain transfers made by debtors before bankruptcy. See 11 U.S.C. §§ 544, 547, 548. These avoidance powers are subject to certain limitations, including a safe harbor in section 546(e) exempting certain transfers. Among other things, section 546(e) bars avoidance of a “settlement payment . . . made by or to (or for the benefit of) . . . a financial institution [or] a transfer made by or to (or for the benefit of) a . . . financial institution . . .

Introduction
Disallowance of Claims of Avoidable Transfer Recipients
Firestar Diamond
The Bankruptcy Court's Ruling
Outlook

The U.S. Bankruptcy Court for the Southern District of New York recently added some weight to the majority rule on a hot-button issue for claims traders. InIn re Firestar Diamond, Inc., 615 B.R. 161 (Bankr. S.D.N.Y. 2020), the court ruled that a transferred claim can be disallowed under section 502(d) of the Bankruptcy Code even if the entity holding the claim is not the recipient of a voidable transfer. According to the court, claim disallowance under section 502(d) "rests on the claim and not the claim holder."

Last February, we blogged about the Third Circuit’s decision in In re Energy Future Holdings Corp, No. 19-1430, 2020 U.S. App. LEXIS 4947 (Feb. 18, 2020). The Third Circuit approved a process for resolving asbestos claims in which a bar date was imposed on filing the claims, but late claimants who were unaware of their asbestos claims would be allowed to have the bar date excused through Bankruptcy Rule 3003(c)(3). (A bar date is a date set by the court by which all claims against the debtor must be filed.

The U.S. Bankruptcy Court for the Eastern District of North Carolina recently added some weight to the majority rule on an issue that has long divided bankruptcy and appellate courts. In In re Southern Produce Distributors, Inc., 2020 WL 1228719 (Bankr. E.D.N.C. Mar.