In Short
The Situation: For cross-border insolvency matters, parties increasingly depend on court-approved protocols to assist in the management of complex insolvencies involving a debtor or debtors whose assets, liabilities, or operations span international borders.
The Action: Courts in Bermuda, the British Virgin Islands, Singapore, the United Kingdom, and some U.S. bankruptcy districts have implemented Guidelines for Communication and Cooperation between Courts in Cross-Border Insolvency Matters.
On April 5 and June 8, 2017, the U.S. House of Representatives passed bills (the Financial Institution Bankruptcy Act of 2017 ("FIBA") and the Financial CHOICE Act of 2017) that would allow financial institutions to seek protection under Chapter 11 of the Bankruptcy Code.
In bankruptcy cases under chapter 11, debtors sometimes opt for a "structured dismissal" when a consensual plan of reorganization or liquidation cannot be reached or conversion to chapter 7 would be too costly. In Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 2017 BL 89680 (U.S. Mar. 27, 2017), the U.S. Supreme Court held that the Bankruptcy Code does not allow bankruptcy courts to approve distributions in structured dismissals which violate the Bankruptcy Code's ordinary priority rules.
On May 1, 2017, the U.S. Supreme Court agreed to hear Merit Management Group v. FTI Consulting, No. 16-784, on appeal from the U.S. Court of Appeals from the Seventh Circuit. The Court's decision could resolve a circuit split as to whether section 546(e) of the Bankruptcy Code can shield from fraudulent conveyance attack transfers made through financial institutions where such financial institutions are merely "conduits" in the relevant transaction.
On May 1, 2017, the U.S. Supreme Court agreed to hear Merit Management Group v. FTI Consulting, No. 16-784, on appeal from the U.S. Court of Appeals from the Seventh Circuit. See FTI Consulting, Inc. v. Merit Management Group, LP, 830 F.3d 690 (7th Cir. 2016) (a discussion of the Seventh Circuit's ruling is available here).
Two recent cases analyzed the misrepresentations of a debtor regarding a single asset and held a written misrepresented value of a single scheduled estate asset would result in nondischargeability under Section 727, and that a verbal misrepresentation of a pre-petition asset to a creditor did not result in an exception to discharge under Section 523.
The U.S. Supreme Court ruled on March 22, 2017, in Czyzewski v. Jevic Holding Corp., that without the consent of affected creditors, bankruptcy courts may not approve "structured dismissals" providing for distributions that "deviate from the basic priority rules that apply under the primary mechanisms the [Bankruptcy] Code establishes for final distributions of estate value in business bankruptcies."
Two recent Bankruptcy Court cases both remind and illustrate the power and risks presented by discovery of facts and documents under Bankruptcy Rule 2004, showing that it can compel third parties to provide information to support later litigation against them or cause them to lose their 5th Amendment right against self-incrimination.
While it has taken five years of committee and court efforts, the “Stern Amendments” to the Federal Rules of Bankruptcy Procedure will become effective December 1, 2016. These amendments will streamline litigant and court procedures in resolving subject matter jurisdiction matters as between district courts and bankruptcy courts.
Two recent cases serve as reminders the devil is truly in the details.