In In re Arcapita Bank B.S.C., 2021 WL 1603608 (Bankr. S.D.N.Y. Apr. 23, 2021), the U.S. Bankruptcy Court for the Southern District of New York addressed the interaction between purported setoff rights arising under investment agreements governed by Islamic law and the Bankruptcy Code's safe harbors protecting the exercise of non-debtors' rights under financial contracts.

Madoff

A recent decision has got the funding community talking and would, if times were different, have led to some water cooler moments. The decision is a mere 19 paragraphs long and, as will become evident, is perhaps as important for what it did not say as for what it did say.

A defendant’s bankruptcy filing need not spell doom for a plaintiff’s case. In fact, bankruptcy court is an attractive forum for plaintiffs in many ways.

It is generally recognized that a bankruptcy court has the power—either equitable or statutory—to recharacterize a purported debt as equity if the substance of the transaction belies the labels the parties have given it. A ruling handed down by the U.S. Bankruptcy Court for the Southern District of New York provides a textbook example of such a recharacterization. In In re Live Primary, LLC, 2021 WL 772248 (Bankr. S.D.N.Y. Mar.

In Stream TV Networks, Inc. v. SeeCubic, Inc., 2020 WL 7230419 (Del. Ch. Dec. 8, 2020), the Delaware Court of Chancery held that the assets of Stream TV Networks, Inc. ("Stream"), an insolvent Delaware-incorporated 3-D television technology company, could be transferred to an affiliate of two of Stream's secured creditors in lieu of foreclosure without seeking the approval of Stream's shareholders under section 271 of the General Corporation Law of Delaware ("DGCL") or Stream's certificate of incorporation.

On April 19, 2021, the U.S. Supreme Court declined to hear the appeal of a landmark 2019 decision issued by the U.S. Court of Appeals for the Second Circuit regarding the applicability of the Bankruptcy Code's safe harbor for certain securities, commodity, or forward contract payments to prevent the avoidance in bankruptcy of $8.3 billion in payments made to the shareholders of Tribune Co. as part of its 2007 leveraged buyout ("LBO").

BUSINESS RESTRUCTURING REVIEW VOL. 20 • NO. 3 MAY–JUNE 2021 IN THIS ISSUE 1 First Impressions: Third Circuit Scuttles Triangular Setoff in Bankruptcy 4 Should Equitable Mootness Bar Appeals Only of Chapter 11 Plan Confirmation Orders? 7 Debate Intensifies on Substantial Contribution Claims in Chapter 7 Cases 10 Bankruptcy Court Recharacterizes Purported Loan as Equity 14 In Brief: “Failing” Delaware Corporation Can Transfer Assets to Creditors in Lieu of Foreclosure Without Shareholder Consent 15 U.S.

Federal equity receivers frequently lack the resources necessary to pursue litigation against individuals and entities that have defrauded or manipulated consumers and investors. As a result, they often utilize contingent fee arrangements, which can deprive a receivership estate of a significant portion of a recovery, usually taking 30 percent to 50 percent of an award or settlement.

With contributions by Deirdre Carey Brown, ForsheyProstok LLP

A company is pursuing a high-value claim against a defendant. The case is strong on the merits, and a substantial recovery appears to be in the offing.

That is, until the defendant files for bankruptcy.