The Bankruptcy Code (“Code”) “does not limit the allowability of unsecured claims for contractual post-[bankruptcy] attorneys’ fees,” held the U.S. District Court for the District of Delaware on Nov. 26, 2018. In re Tribune Media Company, 2018 WL 6167504 (D. Del. Nov. 26, 2018). In a short and sensible opinion, the district court reversed the bankruptcy court’s disallowance of an undersecured lender’s fees.

“… Ponzi scheme payments to satisfy legitimate antecedent debts to defendant banks could not be avoided” by a bankruptcy trustee “absent transaction-specific proof of actual intent to defraud or the statutory elements of constructive fraud – transfer by an insolvent debtor who did not receive reasonably equivalent value in exchange,” held the U.S. Court of Appeals for the Eighth Circuit on Nov. 20, 2018. Stoebner v. Opportunity Finance LLC, 2018 WL 6055636 at *4 (8th Cir. Nov. 20, 2018), citing Finn v. Alliance Bank, 860 N.W. 2d 638, 653-56 (Minn. 2015).

A license agreement “deemed rejected by operation of law” could not be acquired under a court-approved asset purchase agreement, held the U.S. Court of Appeals for the Fifth Circuit on Oct. 29, 2018. In re Provider Meds LLC, 2018 WL 5317445, *2 (5th Cir. Oct. 29, 2018). Although the acquirer claimed “that it purchased a patent license from [the] debtors in bankruptcy sales of their estates,” the court explained that “a rejected executory contract … could not have been transferred by the bankruptcy sales in question … .” Id., at *1.

“The right of setoff … allows entities to apply their mutual debts against each other to avoid the pointless exercise of ‘making A pay B when B owes A.’” held the Seventh Circuit on Aug. 17, 2018. Berg v. Social Security Administration, 900 F.3d 864, 868 (7th Cir. 2018). But the Bankruptcy Code (“Code”) limits “a creditor’s right of setoff during the ninety-day period prior to the” date of bankruptcy, said the court. Id.

On September 21, 2018, the United States District Court for the District of Delaware issued a decision holding that the Bankruptcy Court had constitutional authority to approve the nonconsensual third-party releases contained in the debtor’s plan of reorganization. The District Court also dismissed as equitably moot all other issues raised on appeal by the appellant in connection with the confirmation order.

The consummation of a plan of reorganization typically involves a series of complex actions by the debtor and its stakeholders (for example, existing debt and equity are extinguished and new debt and equity issued in their place). If an appeal of a confirmation order is taken, and the appeal reaches the appellate court following consummation of the plan, it raises the difficult question of whether it is possible to grant effective relief to the appellant at that stage. As a constitutional matter, courts — including appellate courts — cannot hear matters that have become moot.

On August 14, 2018, the United States Court of Appeals for the Eleventh Circuit issued a decision holding that section 547(c)(4) of the Bankruptcy Code, which provides a defense to the avoidance of preferential transfers to the extent the transferee provided new value to the debtor,[1] does not require new value to remain unpaid as of the date the bankruptcy petition was filed.

A defendant creditor in a preference suit may offset (a) the amount of later “new value” (i.e., additional goods) it gave the Chapter 11 debtor against (b) the debtor’s earlier preferential payment to the creditor, held the U.S. Court of Appeals for the Eleventh Circuit on Aug. 14, 2018. In re BFW Liquidation LLC, 2018 WL 3850101 (11th Cir. Aug. 14, 2018). Even when the creditor was paid for the new goods, stressed the court, Bankruptcy Code (“Code”) “§ 547(c)(4) does not require new value to remain unpaid.” Id., at *5.

A bankruptcy court properly dismissed a creditor’s involuntary bankruptcy petition “for cause” when it “would serve none of the Bankruptcy Code’s goals or purposes . . . and [when] the sole [petitioning] creditor is not substantially prejudiced by remedies available under state law,” held the U.S. Court of Appeals for the Second Circuit on Aug. 14, 2018. In re Murray, 2018 WL 3848316, *7 (2d Cir. Aug. 14, 2018). In its view, the bankruptcy court “declined to serve as a ‘rented battle field’ or ‘collection agency’” for a single creditor. Id., at *7.

A purported conditional sale agreement “created a security interest rather than a lease,” held the U.S. Court of Appeals for the Fifth Circuit on Aug. 7, 2018. In re Pioneer Health Services Inc., 2018 WL 3747537, *3 (5th Cir. Aug. 7, 2018). Affirming the lower courts’ finding “that the relevant agreements were not ‘true leases,’” the court rejected a bank’s “motion to compel payment under [its] contract as an unexpired lease or an administrative expense.” Id., at *1. The economic substance, not the form of the transaction, was decisive.