U.S. Bankruptcy Judge Craig A. Gargotta rejected a debtor’s attempt to use “CARES Act” funds, which it did not actually qualify for, to pay creditors in its chapter 11 case.

In a recent decision, a district court reversed the decision of the bankruptcy court and clarified the independent obligation of the Bankruptcy Court to ensure that a Chapter 13 Plan satisfies the necessary requirements of the Bankruptcy Code, irrespective of the parties’ conduct.  In re: BRUCE D. PERRY, Debtor. KRISTA PREUSS, Standing Chapter 13 Tr., SDNY, Appellant, v. BRUCE D. PERRY, Appellee., No. 20-CV-4617 (CS), 2021 WL 4298192 (S.D.N.Y. Sept. 21, 2021)

On the heels of this month’s confirmation of Purdue Pharma’s controversial plan of reorganization which contained third-party releases in favor of the Sackler family members, a new bill has been introduced in the Senate seeking an end to what some critics refer to as “bankruptcy forum shopping.” The bill is a companion bill to H.R.

The District Court for the Southern District of New York recently issued an important decision that provides further support for a holistic analysis when applying the Bankruptcy Code’s “safe harbors.” In Mark Holliday, the Liquidating Trustee of the BosGen Liquidating Trust v. Credit Suisse Securities (USA) LLC, et al., 20 Civ. 5404 (Sept. 13, 2021), the District Court affirmed the Bankruptcy Court’s dismissal of the plaintiff’s state law fraudulent conveyance claims against the defendants as protected from avoidance by the “safe harbors” of Section 546(e) of the Bankruptcy Code.

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. Here are this week’s updates.

Monday, August 23, 2021

Medicaid Fraud

Earlier this month – citing the “virtually unflagging obligation” of an Article III appellate court to exercise its subject matter jurisdiction – the Eighth Circuit Court of Appeals decried the pervasive overreliance by district courts on the doctrine “equitable mootness” to duck appeals of confirmation orders.[1]

Judge Stacey Jernigan did not mince words in a recent opinion sanctioning the former CEO of Highland Capital Management, LP. Entities related to the former CEO brought suit against Highland (the debtor in a Chapter 11 bankruptcy proceeding), and sought leave from the district court to add Highland’s replacement CEO as a defendant. In Judge Jernigan’s view, such conduct violated her “gatekeeping” orders that required the bankruptcy court’s approval before “pursuing” actions against the new CEO.

The Delaware Bankruptcy Court (“Bankruptcy Court”) recently issued a ruling that provides additional clarity regarding the treatment of “appraisal rights” in bankruptcy proceedings and the scope of section 510(b) of the Bankruptcy Code. In In reRTI Holding Company, LLC, et al., (decided August 4, 2021) the Bankruptcy Court subordinated the general unsecured claims filed by holders of “appraisal rights” in respect of the debtors’ equity (the “Claimants”).

A key goal of the Bankruptcy Code is to prevent corporate insiders from profiting from their employer’s misfortune. Section 503(c) of the Code makes clear: “there shall neither be allowed, nor paid... a transfer made to, or an obligation incurred for the benefit of, an insider of the debtor for the purpose of inducing such person to remain with the debtor's business” absent certain court-approved circumstances.

Some courts permit debtors to designate vendors crucial to their business as “critical vendors.” These vendors supply debtors with necessary goods or services. Debtors are permitted to pay them amounts owing when a bankruptcy case is filed. Accordingly, critical vendors often recover more on their pre-petition claims than other unsecured creditors. In other words, critical vendors could receive a full recovery, while other creditors only receive a fraction of what they are owed.