On March 12, 2009, Gerald Rote and Annalisa Rote  loaned $38,000 to their daughter and son-in-law to buy  a home. The Rotes took a mortgage on the home but, to  avoid the expense of publicly recording the mortgage,  they did not immediately record it. Rather, they waited  two years, until May 4, 2011, to record the mortgage.  Seven months later, however, the daughter and son-inlaw filed a bankruptcy petition.

In recent years, bankruptcy courts have come closer to reaching a consensus regarding their ability to recharacterize debt into equity. Yet, beneath this consensus lies a deepening divide that lenders should be aware of. Recharacterization challenges “the assertion of a debt against the bankruptcy estate on the ground that the ‘loaned’ capital was actually an equity investment.” In re Insilco Techs., Inc., 480 F.3d 212, 217 (3d Cir. 2007) (internal citations omitted).

After a plan of reorganization is confirmed by the bankruptcy court, the plan proponents often seek to consummate the confirmed plan as soon as possible by implementing a series of restructuring transactions. Meanwhile, and objecting party has the statutory right to appeal the bankruptcy court's confirmation rulings. Absent the entry of a court-ordered stay of implementation, however, the plan proponents may "win the race" and implement the transactions before the appellate court can rule on any appeals.

In his judgment handed down on 18 October1 Popplewell J took the opportunity to clarify the law
regarding payments by a company to third parties which may or may not have been suspicious and
where the company may or may not have been insolvent at the time. He looked long and hard at the
state of knowledge necessary to ground liability, at defences available to directors and whether the
court could relieve liability for innocent breaches.

Bankruptcy is intended to provide a fresh start and discharge outstanding debt.  But some debt is not dischargeable in bankruptcy.  A Virginia bankruptcy court held last week that a judgment against the debtor for intentional trade secret misappropriation is not dischargeable.

On September 12, 2013, in the American Airlines case, the US Court of Appeals for the Second Circuit affirmed an order of the United States Bankruptcy Court for the Southern District of New York (a) authorizing the debtor to use proceeds of postpetition financing to repay prepetition debt without payment of amake-whole amount, and (b) denying a creditor’s request for relief fromthe automatic stay.  

Background Facts

On August 21, 2013, in Wellness International Network v. Sharif, No. 12-1349 (7th Cir. August 21, 2013), the Seventh Circuit issued its latest opinion on the thorny issues emanating from the Supreme Court’s “narrow” decision in Stern v. Marshall, 131 S. Ct.

The Issue

The Issue

Fiduciaries who breach their duties may pay the consequences far longer than they may think, for they may not even be able to escape liability through personal bankruptcy.  In Raso v. Fahey (In re Fahey), No. 11-1118 (June 11, 2013), the U.S Bankruptcy Court for the District of Massachusetts became the first court to apply the new defalcation guidelines laid down by the Supreme Court in Bullock v. BankChampaign, NA, 133 S. Ct.