Assignments for benefit of creditors (“ABC”) are rarely used in these United States. That’s for two reasons: (i) some states have no ABC statute and do not recognize the common law of ABCs, and (ii) other states have onerous ABC statutes that no one wants to use.
The State of Illinois is an exception: ABCs are regularly and frequently used there, under the common law of trusts, because the ABC process is an efficient and effective tool for liquidating a failed or failing business. There is no ABC statute in Illinois.
Every now and then we get a bankruptcy opinion declaring a rule with broad application that, (i) may make sense is specific situations, but (ii) is a terrible result for others.
Here’s an Exhibit A opinion for such a proposition: Reinhart Foodservice LLC v. Schlundt, Case No. 21-cv-1027 in the U.S. District Court for Eastern Wisconsin, (Doc. 12, issued October 27, 2022).
The Facts
Poor Chicago.
Unlike the result for Chicago’s traffic ticket income in Fulton v. Chicago, the U.S. Supreme Court refuses to rescue Chicago in City of Chicago v. Mance (Case No. 22-268; Cert. denied, 11/21/2022).[Fn. 1]
Four decades and several years ago, Congress repeals the Federal Bankruptcy Act of 1898 and replaces it with the Bankruptcy Reform Act of 1978, aka the “Bankruptcy Code.”[Fn. 1]
A decade later, Justices on the U.S. Supreme Court are still disparaging the new Bankruptcy Code as the “sweeping changes Congress instituted in 1978” and “the radical reforms of 1978.”[Fn. 2]
Every now and then we get an example of how a process should work.
That’s exactly what we have, regarding confirmation of a contested Subchapter V plan, in the case of In re Lapeer Aviation, Inc., Case No. 21-31500 in the Eastern Michigan Bankruptcy Court.
In an opinion issued October 12, 2022, (Doc. 264), the Lapeer Court declares that, (i) most of the plan confirmation standards are satisfied, but (ii) the plan is deficient under two confirmation standards and, therefore, cannot be confirmed.
During a November 9, 2022, hearing on summary judgment motions in the Hertz bankruptcy, Delaware Bankruptcy Judge Mary F. Walrath issues the following oral ruling:
The case is Wells v. McCallister, Case No. 21-1448 in the United States Supreme Court.
The question presented is:
- whether a debtor’s homestead exemption, existing on the date of bankruptcy filing, can vanish if the debtor sells the homestead during the bankruptcy and does not promptly reinvest the proceeds in another homestead.
The Petition for writ of certiorari explains:
Recent rulings out of the United States Court of Appeals for the Fifth Circuit and its lower bankruptcy courts have emphasized the circuit’s broad interpretation of section 363(m) of the Bankruptcy Code, which protects bankruptcy sales from being overturned on appeal.
In her September 23 opinion in In re Royal Street Bistro, LLC, et al., No. 21-2285, District Judge Sarah S. Vance provided a comprehensive summary of the Fifth Circuit case law while mooting a debtor’s attempt to appeal a sale under section 363 of the Bankruptcy Code.
In his final opinion, Judge Robert D. Drain of the United States Bankruptcy Court for the Southern District of New York held that dividends paid from proceeds of safe-harbored transactions under section 546(e) of the Bankruptcy Code are not safe-harbored. While only approximately 15 pages of Judge Drain’s 109-page final opus are dedicated to consideration of the section 546(e) issue, the relevant analysis ends with a pressing question to Congress and an appeal to modify section 546(e) to “restrict to public transactions its currently overly broad free pass . . .
For some reason, there is a fascination out there (not sure where, exactly) with having every assignment for benefit of creditors (“ABC”) supervised by a court from the get-go.
This fascination suggests that every ABC effort requires court action and judicial approvals, from the beginning and throughout the assignment, to assure that everything about the ABC and its administration is on the up-and-up.
Startling and Puzzling
This fascination is both startling and puzzling. Here are some reasons why.