U.S. courts generally agree that the substantive consolidation should be applied sparingly, and even more so when substantive consolidation of debtors with non-debtors is sought. While many opinions address the grounds for substantive consolidation, very few cases address standing and notice issues when the sought for consolidation is of non-debtor entities. The Oklahoma bankruptcy court recently addressed these two issues in SE Property Holdings, LLC v. Stewart.
Under section 1111(b) of the U.S. Bankruptcy Code, a non-recourse secured creditor that holds “a claim secured by a lien on property of the estate” is granted recourse against the bankruptcy estate upon the filing of a chapter 11 bankruptcy petition. But what happens when there has been a post-petition foreclosure on such property, so that it is no longer part of the estate and the liens have been extinguished? Can the creditor still use section 1111(b) to assert a claim against the bankruptcy estate? The Ninth Circuit answered no in Matsan v.
(6th Cir. B.A.P. May 18, 2017)
(Bankr. E.D. Ky. May 18, 2017)
(U.S. Sup. Ct. May 15, 2017)
(Bankr. W.D. Ky. May 12, 2017)
The bankruptcy court enters summary judgment against the debtor holding the debt nondischargeable pursuant to 11 U.S.C. § 523(a)(4). The plaintiffs inherited a judgment against the debtor that was based on the debtor’s theft of the decedent’s property. The plaintiffs were the proper parties to bring the claim, as the decedent’s estate assigned the judgment to them, and the requirements of § 523(a)(4) were satisfied. Opinion below.
Judge: Lloyd
Attorneys for Plaintiffs: Crain – Schuette Attorneys, Amanda Lisenby Blakeman
(W.D. Ky. May 2, 2017)
(6th Cir. May 2, 2017)
The Sixth Circuit reverses the bankruptcy court, finding that the assignment of rents acted as a complete transfer of ownership and the assignor did not retain any interest in the rents. The court analyzes Michigan law on such assignments and concludes that because the debtor/assignor had no rights in the rents assigned, they were not property of the bankruptcy estate. Opinion below.
Judge: Stranch
Attorney for Appellant: Robert N. Bassel
Attorney for Appellee: Jeremy S. Friedberg
(6th Cir. April 28, 2017)
The Sixth Circuit affirms the district court and the bankruptcy court, holding that the sale of certain equity interests in the debtor to third parties was prohibited by the confirmed Chapter 11 plan. While the plan was silent as to such sales, the bankruptcy court did not abuse its discretion when interpreting the plan and considering the intent of the parties based on the negotiations that resulted in the final confirmed plan. Opinion below.
Judge: Donald
(Bankr. S.D. Ind. April 24, 2017)