In a recent decision by the influential Third Circuit Court of Appeals, In re KB Toys Inc., 2013 U.S. App. LEXIS 23083 at *17 (3d Cir. Nov. 15, 2013), the Court decided that “the cloud on the claim” stemming from a preferential payment made to the original claimant continues with the claim, which then could be disallowed.

Last month, District Court Judge Shira A. Scheindlin of the Southern District of New York affirmed a bankruptcy court ruling which held that the environmental cleanup obligations of debtor Mark IV Industries, Inc. were not discharged in bankruptcy.2 Given the current legal landscape, Mark IV may make the likelihood of discharging environmental claims even more difficult, potentially undermining chapter 11 as an optimal alternative for companies saddled with environmental liabilities.