In a June 3, 2016 decision1 , the United States Bankruptcy Court for the District of Delaware (“the Bankruptcy Court”) invalidated, on federal public policy grounds, a provision in the debtorLLC’s operating agreement that it viewed as hindering the LLC’s right to file for bankruptcy. Such provision provided that the consent of all members of the LLC, including a creditor holding a so-called “golden share” received pursuant to a forbearance agreement, was required for the debtor to commence a voluntary bankruptcy case.
“Puerto Rico’s Recovery Act is barred by § 903(1) … of the Bankruptcy Code,” held the U.S. Supreme Court on June 13, 2016. Commonwealth of Puerto Rico v. Franklin California Tax-Free Trust, 2016 WL 3221517, *11 (U.S. June 13, 2016) (5-2). Affirming the First Circuit, the court reasoned that Code § 903(i) “preempts state bankruptcy laws [enabling] insolvent municipalities to restructure their debts over the objections of creditors [and] instead requires municipalities to restructure [their] debts under Chapter 9 of the Code.” Id., at *2.
In its recently issued decision in Husky International Electronics, Inc. v. Ritz, a 7-1 majority of the Supreme Court has clarified that intentionally fraudulent transfers designed to hinder or defraud creditors can fall within the definition of “actual fraud” under Section 523(a)(2)(A) of the Bankruptcy Code and can sometimes result in corresponding liabilities being non-dischargeable in a personal bankruptcy proceeding.1
In a March 29, 2016 decision,1 the United States Court of Appeals for the Second Circuit (the "Court of Appeals") held that creditors are preempted from asserting state law constructive fraudulent conveyance claims by virtue of the Bankruptcy Code's "safe harbors" that, among other things, exempt transfers made in connection with a contract for the purchase, sale or loan of a security (here, in the context of a leveraged buyout ("LBO")), from being clawed back into the bankruptcy estate for distribution to creditors.
“Reasonably equivalent value” as a defense to a fraudulent transfer suit “can be satisfied with evidence that the transferee (1) fully performed under a lawful, arm’s-length contract for fair market value, (2) provided consideration that had objective value at the time of the transaction, and (3) made the exchange in the ordinary course of the transferee’s business,” held the Supreme Court of Texas on April 1, 2016, in response to a certified question from the U.S. Court of Appeals for the Fifth Circuit. Janvey v. Golf Channel, ___ S.W.3d ___, 2016 WL 1268188, at *2 (Tex.
A corporation’s asset sale “was structured [by its insiders] so as to fraudulently transfer assets in order to avoid paying [a major creditor] what it was owed,” held the U.S. Court of Appeals for the Seventh Circuit on March 22, 2016. Continental Casualty Co. v. Symons, 2016 WL 1118566, at *6 (7th Cir., March 22, 2016).
Creditors of a Chapter 11 debtor asserting “state law, constructive fraudulent [transfer] claims … are preempted by Bankruptcy Code Section 546(e),” held the U.S. Court of Appeals for the Second Circuit on March 29, 2016. In re Tribune Company Fraudulent Conveyance Litigation, 2016 WL ____, at *1 (2d Cir. March 29, 2016), as corrected.
A Chapter 11 debtor’s pre-bankruptcy “surrender of [two] … leases to [its landlord] could be regarded as a preferential transfer,” held the U.S. Court of Appeals for the Seventh Circuit on March 11, 2016. In re Great Lakes Quick Lube LP, 2016 WL 930298, at *2 (7th Cir. March 11, 2016).
The release provisions in a corporate debtor’s Chapter 11 plan were “not sufficiently specific to release” a plaintiff’s Fair Labor Standards Act (“FLSA”) claim against the debtor’s president (“P”), held the U.S. Court of Appeals for the Fifth Circuit on Jan. 6, 2016. Hernandez v. Larry Miller Roofing, Inc., 2016 WL 67217, at *4 (5th Cir. Jan. 6, 2016).
A Chapter 11 debtor’s impairment in its reorganization plan of two unsecured claims filed by its former lawyer and accountant “was transparently an artifice to circumvent the purposes of” the Bankruptcy Code (“Code”), held the U.S. Court of Appeals for the Sixth Circuit on Jan. 27, 2016. In re Village Green I G.P., 2016 WL 325163, at *2 (6th Cir. Jan. 27, 2016).