Non-profits are just like for-profit companies in that they can be faced with significant financial challenges for which bankruptcy provides an opportunity for restructuring or liquidation for the benefit of their creditors and other stakeholders. Many times, particularly in the areas of healthcare and religious institutions, non-profit bankruptcies raise complex and novel insolvency issues. This blog post discusses four of the unique aspects of non-profit bankruptcies.

1. Non-profits are not subject to involuntary bankruptcy.

Bankruptcy lawyers recently gained access to a promising technology for improving the efficiency of tasks like drafting a motion for relief from stay. ChatGPT allows users to employ generative artificial intelligence by chatting with a chatbot on OpenAI’s website https://chat.openai.com/chat.

This entry is part of Nelson Mullins’s ongoing “Bankruptcy Basics” blog series that is intended to address foundational aspects of bankruptcy for new and non-bankruptcy practitioners and professionals. This entry will discuss the general structure of bankruptcy cases and the differences between “adversary proceedings” and “contested matters.”

Looking at the most recent figures on corporate insolvencies makes for worrying reading for landlords and occupiers alike, with overall numbers now exceeding pre-pandemic levels. Overall, corporate insolvencies increased by 17% in England and Wales since February 2022 and were a third higher than in February 2020.

A large number of UK companies are in significant financial distress at the moment.

You represent the unsecured creditors committee in a complex Chapter 11 case, where you have reason to believe that the debtor’s officers and directors have, and continue to, engage in self-dealing and are breaching their fiduciary duties by not advancing a plan in the best interest of creditors. So, the committee asks you to seek the appointment of an examiner to investigate.

Concern amongst sports aficionados around the financial integrity of the sports industry was raised in late 2022 when rugby union was the latest sport to be dragged into the insolvency conversation. Both Wasps RFC (Wasps) and Worcester RFC (Worcester, and together with Wasps, the Clubs), who can each trace their history back to the mid-19th century, appointed administrators after facing financial difficulties they attributed to the Covid-19 pandemic and resulting lockdowns.

In a unanimous decision handed down on Feb. 22, 2023, the Supreme Court reinforced one of the Bankruptcy Code’s important creditor protections. In Bartenwerfer v. Buckley, No. 21-908, 598 U.S. ___ (2023), the Court confirmed, in an opinion authored by Justice Barrett, that the Bankruptcy Code bars the discharge by individual debtors of debts fraudulently obtained by the debtor’s agent or business partner.

There is seemingly, in the opinion of a great number of bankruptcy courts, a conflict between the United States Bankruptcy Code requirements that a debtor reorganize or liquidate “in good faith,” the federal Controlled Substances Act [21 USC § 841] (“CSA”) prohibiting, among other things, the distribution or sale of marijuana, and the laws of over half of the states in the country that authorize the sale of marijuana for medical and other purposes.

In a previous blog post from June 2022, we discussed the Tenth Circuit’s post-Sigel decision in John Q. Hammons Fall 2006 LLC v. U.S. Trustee (In re John Q. Hammons Fall 2006 LLC), 15 F.4th 1011 (10th Cir. Oct. 5, 2021), which held that the government must pay a refund to a Chapter 11 debtor based on what the debtor would have paid over the same time were the case in a Bankruptcy Administrator district.