What happens to funds held by a Chapter 13 trustee (the “Trustee”) in the event that a Chapter 13 debtor dismisses her case voluntarily? That’s the question that was addressed by the United States Bankruptcy Court for the Eastern District of Michigan (the “Court”) in a recent opinion.1
In this case, the Chapter 13 debtor (the “Debtor”) owned a residence with significant equity. The Court confirmed a plan pursuant to which the Debtor would retain her residence and make monthly payments to the Trustee in the amount of $8,500.75 for 60 months.
Private equity sponsors should be aware of two recent court decisions. One involves fiduciary duties under state law that may be owing to a limited liability company borrower by its managers, in the context of receivables financing facilities or other asset-based lending transactions involving the use of special-purpose vehicles. The other involves certain implications of governing-law choices under acquisition financing and related agreements.
Pottawattamie: Maybe Not So Special (Purpose) After All
The purpose of filing for Chapter 7 bankruptcy is to discharge debts. But even after obtaining a discharge, a debtor is not totally in the clear. A recent case in the United States Bankruptcy Court for the Western District of Michigan involves an adversary proceeding in which the United States Trustee sought to revoke a Chapter 7 debtor’s (the “Debtor”) discharge.[i]
On May 16, the U.S. Supreme Court decided Husky International Electronics, Inc. v. Ritz[1], ruling that the term “actual fraud” in section 523(a)(2)(A) of the Bankruptcy Code includes forms of fraud that do not involve a fraudulent misrepresentation.
Chapter 13 bankruptcy allows debtors to confirm plans that provide for the payment of their debts through future earnings while, at the same time, retaining their assets. If a creditor wishes to receive payments pursuant to a debtor’s plan, the creditor must file a proof of claim. And it must do so timely.
The U.S. Bankruptcy Court for the Eastern District of Michigan recently considered the issue of whether a Chapter 7 trustee may bring a cause of action against a debtor for damages caused to the bankruptcy estate by the debtor’s alleged failure to comply with the debtor’s duties under section 521 of the Bankruptcy Code.
Bankruptcy is all about the debtor’s assets, specifically how many and who gets them. The reason that many bankruptcy cases are contentious is that the parties often disagree about the amount of assets available for distribution to creditors, as well as how the assets should be divvied up.
There is nothing quite like obtaining a new customer or getting a new big sale - the prospect of recurring revenue from a new source, the validation of business strategy, or the culmination of a successful negotiation.
However, there is nothing more disheartening than when a new customer is unable or unwilling to pay for the product you just shipped or services you just provided. Perhaps there is one thing that is worse, when a long-term customer fails to pay.
Two recent court decisions may affect an equity sponsor’s options when deciding whether and how to put money into - or take money out of - a portfolio company. The first may expand the scope of “inequitable conduct” that, in certain Chapter 11 settings, could lead a court to equitably subordinate a loan made by a sponsor to its portfolio company, placing the loan behind all of the company’s other debt in the payment queue. The second decision muddies the waters of precedent under the U.S. Bankruptcy Code on the issue of the avoidability of non-U.S.
In the Summer of 2014, we wrote about a Chapter 7 bankruptcy case in the U.S. Bankruptcy Court for the Western District of Michigan (the “Bankruptcy Court”) involving an intra-family squabble.