The Bankruptcy Code’s Section 547(b) allows a trustee or debtor in possession to recover property transferred to a creditor, known as a preference action. However, the Code also provides defenses to a preference action, including the ordinary course of business defense.

A Section 363 sale is a sale of a company's assets pursuant to Section 363 of the Bankruptcy Code. The Bankruptcy Court will approve a 363 sale if the debtor can demonstrate a "substantial business justification" for the sale.

Key Issues

In general, Section 363 bankruptcy sales proceed as follows:

This article, part of our Creditor’s Rights Toolkit [link] series, serves as an essential guide for vendors navigating the complex landscape of dealing with financially distressed or bankrupt customers. It provides a detailed exploration of the options available to vendors who are proactive and quick to act when they learn of their customer’s financial woes.

Successor liability is a catchall term for a group of legal theories that, in certain circumstances, allow a creditor to recover amounts owed by its obligor from a person or entity who succeeds to the assets or business of that obligor. Typically, claimants cannot pursue successor liability against a purchaser in a bankruptcy sale because most sales are made "free and clear" of such claims under Section 363(f) of the Bankruptcy Code. However, there are some limited exceptions to this general rule.

On January 27, 2020, FERC petitioned the United States Court of Appeals for the Sixth Circuit (“Sixth Circuit”) for rehearing en banc of that court’s decision finding bankruptcy court-FERC concurrent jurisdiction over certain power purchase agreements. Notwithstanding such concurrent jurisdiction, the Sixth Circuit’s decision finds that the bankruptcy court’s concurrent jurisdiction is paramount, and that therefore, FERC-jurisdictional power purchase agreements are susceptible to rejection in bankruptcy.

In orders issued on January 25 and 28, 2019, FERC concluded that the Commission and the bankruptcy courts have concurrent jurisdiction to review and address the disposition of FERC-jurisdictional contracts sought to be rejected through bankruptcy and, therefore, a party to a FERC-jurisdictional wholesale power agreement must first obtain approval from both FERC and the bankruptcy court to modify the filed rate and reject the filed wholesale power contract, respectively. FERC made its determination in response to two separate petitions (“Petitions”) filed by NextEra Energy, Inc.

The issue of whether gathering agreements are subject to rejection in bankruptcy as executory contracts and whether certain provisions of those agreements run with the land and survive rejection will impact ongoing bankruptcy proceedings of producers, as well as renegotiations of existing gathering agreements.