Insurers with unwanted runoff blocks of business should consider the latest guidance from insurance regulators on potential transactional structures that could mitigate this issue.

Companies in Chapter 11 must publicly report substantial financial information — indeed, more information should be reported or available publicly in Chapter 11 than outside of Chapter 11. This paper analyzes what information must be publicly reported or disclosed under the securities laws, the Bankruptcy Code and Bankruptcy Rules; what debtors do to minimize public reporting; and what creditors can do to get the public reporting they deserve.

Debtors May Stop Public Reports Under the Securities Laws.

The Eighth Circuit held that “avoidance actions [e.g., preferences, fraudulent transfers] can be sold as property of the [Chapter 7 debtor’s] estate.” In re Simply Essentials, LLC, 2023 WL 5341506, *1 (8th Cir. Aug. 21, 2023). On a direct appeal from the bankruptcy court, the court affirmed the bankruptcy court’s granting of the trustee’s motions to compromise and sell property under Bankruptcy Code §363(f). A creditor had objected, arguing unsuccessfully that “avoidance actions… are not part of the bankruptcy estate ….” Id.

What Happened?

On July 28, 2023, Judge Michael Kaplan of the Bankruptcy Court for the District of New Jersey issued an opinion granting motions to dismiss LTL Management LLC’s second chapter 11 case, finding that it was filed in bad faith due to a lack of imminent and immediate financial distress. See In re LTL Mgmt., LLC, No. 23-12825 (MBK), 2023 WL 4851759 (Bankr. D.N.J. July 28, 2023). Judge Kaplan’s decision follows the U.S. Court of Appeals for the Third Circuit’s dismissal of LTL’s first chapter 11 bankruptcy case in January 2023.

Over the past year, digital asset investors have become acutely aware of asset custody and counterparty credit risks due to the high-profile bankruptcies of Voyager, Celsius, BlockFi, and FTX. These investors have found that, at times, their assets may be stuck in a bankruptcy proceeding for years. However, these investors—now bankruptcy claim holders—have options for more immediate liquidity.

On July 14, the U.S. Court of Appeals for the Ninth Circuit partially affirmed and partially reversed a district court’s dismissal of an FDCPA suit. The district court reviewed plaintiff’s claims under the FDCPA, which alleged that defendants violated the bankruptcy court’s order discharging his debt and knowingly filed a baseless debt collection lawsuit.

The U.S. Court of Appeals for the Second Circuit quietly affirmed a bankruptcy court’s dismissal of an involuntary petition because the petitioners’ “claims were the subject of bona fide disputes within the meaning of” Bankruptcy Code (Code) §303(b)(1) (petitioner may not hold claim that is “the subject of a bona fide dispute as to liability or amount”). In re Navient Solutions, LLC, 2023 WL 3487051 (2d Cir. May 17, 2023).

“Sophisticated financial titans engaged in a winner-take-all battle. There was a winner and a loser. Such an outcome was not only foreseeable, it is the only correct result. The risk of loss is a check on unrestrained behavior.”

On May 30, 2023, the U.S. Court of Appeals for the Second Circuit affirmed a bankruptcy court’s confirmation of a chapter 11 reorganization plan containing nonconsensual releases of direct claims against third-party non-debtors, including the debtor’s controlling owners, the Sacklers.