Section 541(a) of the Bankruptcy Code creates a worldwide estate comprising all of the legal or equitable interests of the debtor, “wherever located,” held by the debtor as of the filing date.¹ The Bankruptcy Code’s automatic stay, in turn, applies “to all entities” and protects the debtor’s property and the bankruptcy court’s jurisdiction by barring “any act to obtain possession of property of the estate . . .

On September 2, the Delaware Supreme Court affirmed a holding by the Court of Chancery that creditors of insolvent Delaware limited liability companies do not have standing to sue derivatively. This contrasts with Delaware corporations: the Delaware courts have recognized that when a corporation becomes insolvent, creditors become the residual risk-bearers and are permitted to sue derivatively on behalf of a corporation to the same extent as stockholders.

Introduction

On June 23, 2011, after fifteen years of hugely acrimonious litigation, the Supreme Court of the United States (the “Court”) issued a decision on a narrow legal issue that may end up significantly limiting the scope of bankruptcy courts’ core jurisdiction.  

Section 108 of the Bankruptcy Code grants a two-year extension of time for a trustee in bankruptcy (or a debtor in possession) to bring law suits, provided that the applicable period to sue didn’t expire before the petition date. It also gives a short extension to the trustee for filing pleadings, curing defaults, and performing other acts on behalf of the debtor. These provisions afford a trustee and debtor in possession valuable time to discover and evaluate potential causes of action and to perform other acts to preserve the debtor’s rights.

CMIC Mortgage Investment Corp v Rodriguez, 2010 BCSC 308; [2010] BCJ No 425

The bankrupt farmer ran an equestrian operation. She acquired two fabric covered barns, with one anchored by solid concrete blocks resting on the ground, and the second anchored into concrete foundations.

Fairbanx Corp v Royal Bank of Canada, 2010 ONCA 385 (Ont CA), on appeal from 2009 CanLII 55376 (Ont SC)

Fairbanx factored accounts for the debtor, Friction Tecnology Consultants Inc. Fairbanx made its Ontario PPSA registration misspelling the name as Technology, with an “H”. Two years later, the debtor obtained a line of credit from the Bank, which correctly named the debtor in its Ontario PPSA registration.

Caines, Re, 2010 NLTD 72

The bankrupt was the holder of a commercial fishing licence. He was discharged from his bankruptcy before the Supreme Court of Canada released its decision inRoyal Bank of Canada v. Saulnier (2008), 298 D.L.R. (4th) 193, in which that Court concluded that a fishing licence was “property” for purposes of the PPSA and BIA.

Able Automotive Ltd v Cameron-Okolita Inc, 2010 SKQB 34

Able brought a motion to appeal the bankruptcy Registrar’s decision that Able was a secured creditor for a certain amount, but disallowing its claim for certain costs, including insurance, a new engine for the vehicle, and storage charges, legal fees and costs.

In a recent decision, SEC v Byers,1 the Second Circuit Court of Appeals held that district courts possess the authority and discretion to bar the filing of involuntary bankruptcy petitions without the district court’s permission.

In dealing with collateral provided by a third party to support the obligations of the prime debtor, lenders and their counsel need to remember the impact of the federal Bankruptcy and Insolvency Act.

Ontario’s Personal Property Security Act (PPSA) was amended to broaden the definition of the word “debtor.” However, the Bankruptcy and Insolvency Act’s (BIA) definition of a “secured creditor” is still restricted to a person holding a charge or a lien “as security for debt due or accruing to the person (lender) holding the debt.”