When a debtor files for bankruptcy, it’s axiomatic that all creditors, wherever located, must immediately cease their efforts to collect on debts owed to them by that debtor, right? Not necessarily so, says the United States Court of Appeals for the Seventh Circuit, insofar as those creditors and their collateral are located outside of the United States.

The Bankruptcy Protector

Envision a scenario in which you purchased a right of first refusal for a parcel of real estate. That right, as bargained for, would let you purchase the parcel if it was put up for sale by matching any competing bidder’s offer. As a diligent prospective purchaser, you would naturally record that right of first refusal in the appropriate land records. So far so good.

A person in possession of a debtor’s property upon a bankruptcy filing now has more guidance from the Supreme Court as to the effect of the automatic stay. In City of Chicago, Illinois v. Fulton, 141 S. Ct. 585 (2021), handed down on January 14 of 2021, the Court was faced with the issue of whether the City of Chicago (the “City”) was liable for violation of the automatic stay for refusing to return vehicles it impounded pre-petition. Issuing a narrow decision under Section 362(a)(3) of the Bankruptcy Code, the Court held that it was not.

At first blush, it may seem counterintuitive for financiers to compete to provide loans to debtor companies that have just filed for protection under an insolvency or restructuring procedure, but they have been proven to do so on a large scale in US Chapter 11 cases and for a variety of reasons, whether to protect an existing loan position or taking an opportunity to garner significant, safe returns as a new lender.

In In re KB Toys Inc.,¹ the US Court of Appeals for the Third Circuit affirmed the holdings of the lower courts that claims subject to disallowance under Section 502(d) of the Bankruptcy Code are “similarly disallowable in the hands of the subsequent transferee.” According to the Third Circuit, when a creditor owes property to the estate, until that property is returned to the estate, that creditor’s claim, regardless of who holds it, is impaired, and the subsequent sale of that c

On April 16, 2013, in Morning Mist Holdings Ltd. v. Krys (In re Fairfield Sentry Ltd.),¹ the US Court of Appeals for the Second Circuit issued an important decision informing fundamental concepts of cross-border insolvency law as implemented pursuant to Chapter 15 of the Bankruptcy Code.

On May 4, 2012, the Delaware bankruptcy court inIn re KB Toys, Inc., et al. (KB Toys), handed down a thoughtful decision addressing the issue of whether impairments attach to a claim or remain with its seller. The KB Toys court held that “a claim in the hands of a transferee has the same rights and disabilities as the claim had in the hands of the original claimant. Disabilities attach to and travel with the claim.”

In the course of the next few weeks, Omega Navigation Enterprises, Inc. and its affiliates (collectively, “Omega”), an international shipping enterprise, will find out if motions by certain of their lenders to, among other things, dismiss Omega’s chapter 11 bankruptcy proceedings have been granted by the U.S. Bankruptcy Court for the Southern District of Texas.¹ If not, then Omega may be permitted to continue its attempt to reorganize its business under chapter 11 of the Bankruptcy Code.

The Bankruptcy Court for the District of Massachusetts recently issued an opinion in In re SW Boston Hotel Venture, LLC¹ in which it found, among other things, that the assignment of voting rights from a junior creditor to a senior creditor pursuant to an intercreditor agreement was unenforceable. The opinion was rendered in connection with the court’s decision to confirm the plan proposed by the debtor, the owner of the W Hotel in Boston.

Background

The District Court for the Southern District of New York recently issued an opinion in Picard v. Katz, et al., (In re Bernard L. Madoff Investment Securities LLC),1 which limits avoidance actions against a debtor-broker’s customers to those arising under federal law based on actual, rather than constructive, fraud. The decision was issued by US District Judge Rakoff in the Trustee’s suit against the owners of the New York Mets (along with certain of their friends, family and associates).