An individual Chapter 11 debtor’s “estate was diminishing” with no “reasonable likelihood of rehabilitation,” held the U.S. Court of Appeals for the First Circuit on July 5, 2016. In re Hoover, 2016 WL 3606918, *2 (1st Cir. July 5, 2016), affirming the bankruptcy court’s conversion of the case to a Chapter 7 liquidation. In a rare appellate decision on the conversion issue, the First Circuit affirmed the finding that the debtor had sold “inventory without replacing it with new inventory or retaining cash sufficient to offset the diminution.” Id. at *3.

Editor’s Note:  One of the many fascinating things about restructuring work is its willingness to evolve by borrowing from other areas of the law.  Just as business practices change, new financing techniques evolve, and transactions become more complex, the bankruptcy world must adapt as well, to allow for a well functioning insolvency system and not a stilted, out of date process.  To that end, we at The Bankruptcy Cave love finding curious decisions in tangential fields of the law, and thinking about how they may change bankruptcy practice, or how bankruptcy pract

We at The Bankruptcy Cave applaud the recent ruling by Judge Whipple of the Bankruptcy Court for the Northern District of Ohio, seeking to make the post-confirmation parties, processes, and procedures far more transparent. In In re Affordable Med Scrubs, LLC,[1] Judge Whipple declined to approve a disclosure statement for a debtor’s liquidating plan.

A lender’s (“Lender”) derivative breach of fiduciary duty claims on behalf of Chapter 7 guarantor-Debtors cannot be time-barred because of Lender’s knowledge of the “[d]efendants’ conduct,” held the U.S. District Court for the District of Delaware on June 22, 2016. In re AMC Investors, LLC, 2016 U.S. Dist. LEXIS 80861, *16 (Del. June 22, 2016).

We’ve all seen it. The business opportunity looks enticing but is laced with risk about a potential bankruptcy filing down the road. As bankruptcy lawyers we are often asked how deals can be structured to prevent a potential bankruptcy filing.

Editor’s Note: On June 16, 2016, The Bankruptcy Cave gave you our summary of the controversial Sabine decision. At that time, post-hearing motions were pending.

A debtor’s pre-bankruptcy repurchase of its stock for $150 million was not a fraudulent transfer because the debtor “could have sold off enough of its assets or alternatively obtained sufficient credit to continue its business for the foreseeable future,” held the U.S. Court of Appeals for the Second Circuit on June 15, 2016. In re Adelphia Communications Corp., 2016 WL3315847, *2 (2d Cir. June 15, 2016). Affirming the lower courts, the Second Circuit stressed that “the issue of adequate capitalization,” the “sole issue presented on appeal ...

On March 9, 2016, Bankruptcy Judge Shelley Chapman of the Southern District of New York issued her decision on the Debtor’s motion to reject certain contracts in Sabine Oil & Gas Corporation’s Chapter 11 case.^[i] The decision, which allowed Sabine to reject “gathering agreements”

“Puerto Rico’s Recovery Act is barred by § 903(1) … of the Bankruptcy Code,” held the U.S. Supreme Court on June 13, 2016. Commonwealth of Puerto Rico v. Franklin California Tax-Free Trust, 2016 WL 3221517, *11 (U.S. June 13, 2016) (5-2). Affirming the First Circuit, the court reasoned that Code § 903(i) “preempts state bankruptcy laws [enabling] insolvent municipalities to restructure their debts over the objections of creditors [and] instead requires municipalities to restructure [their] debts under Chapter 9 of the Code.” Id., at *2.

A recent decision out of a New Jersey Bankruptcy Court highlights a loophole in the Bankruptcy Code which may allow Chapter 7 debtors to keep significant assets out of the hands of trustees and creditors.