Is a debtor “engaged in commercial or business activities” for Subchapter V eligibility?

Such question has been addressed on many occasions and by many courts.

The trend seems to be toward a conclusion that the nature and quantity of “commercial or business activities” required for Subchapter V eligibility is this:

• Nature = “easily met”; and
• Quantity = “not much.”

The latest opinion to confirm the trend is In re Robinson, Case No. 22-2414, Southern Mississippi Bankruptcy Court (issued April 17, 2023; Doc. 90).

Oral arguments occur on April 24, 2023, before the U.S. Supreme Court in Lac Du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, Case No 22-227. Here is a link to the oral arguments transcript.

What follows is an attempt to, (i) summarize the facts and issue in the case, and (ii) provide a sampling of questions and comments from the justices during oral arguments.

Facts

Here’s what happened:

“within three (3) business days of termination of the mediation, the Debtors shall publicly disclose the terms of the last offers extended by each of the Mediation Parties, respectively.”[Fn. 1]

Say what!?

Whoever heard of such a thing—a requirement that the “last offers” of the mediating parties be publicly disclosed?

And this requirement is in a “consensual” mediation order entered in the Genesis Global Holdco, LLC, bankruptcy.[Fn. 2]

Context

Here’s the context.[Fn. 3]

On April 17, 2023, the Fifth Circuit Court of Appeals, in Matter of RE Palm Springs II, L.L.C., 2023 WL 2966520 (5th Cir. April 17, 2023), held that a senior lender who uses economic leverage and asserts its legal rights to squeeze out a junior lender remains a good faith purchaser entitled to declare an appeal moot based on a sale under section 363(m) of the Bankruptcy Code. Key to the Fifth Circuit’s opinion was the fact that the actions in question were disclosed to the bankruptcy court in advance of it making the section 363(m) finding.

Facts

Dismissal of a bankruptcy—for bad faith filing—is a rarity.

So, how a bankruptcy court grapples with the bad faith issue . . . and ends up dismissing the bankruptcy . . . can provide a lesson for us all.

What follows is a summary of how a Chapter 11 bankruptcy is dismissed when the Court is convinced that the bankruptcy is intended for the benefit of a non-debtor . . . and not for the benefit of the debtor or its creditors.

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.

It’s a defense v. offense distinction:

• Defense—An objection and counterclaim designed to diminish or zero-out a proof of claim in bankruptcy is not subject to arbitration; but
• Offense—An objection or counterclaim designed to do anything more . . . can be compelled to arbitrate.

That’s the essence of a recent opinion in Johnson v. S.A.I.L. LLC (In re Johnson), Adv. No. 22 -172, Northern Illinois Bankruptcy Court (issued March 28, 2023; Doc. 18). What follows is a summary of that opinion.

Facts

Johnson & Johnson filed bankruptcy back in 2021 (In re LTL Management, Case No. 21-30589, New Jersey Bankruptcy Court).

That bankruptcy is now dismissed—on order of the U.S. Third Circuit Court of Appeals.

So, Johnson & Johnson refiles its bankruptcy (In re LTL Management, Case No. 23-12825, New Jersey Bankruptcy Court).

New and Improved

Here’s what’s new and improved about the second bankruptcy[fn. 1]:

“The trustee may avoid . . . any obligation . . . incurred by the debtor, that was madeor incurred“ with actual fraudulent intent or as constructive fraud.

–From § 548 of Bankruptcy Code (emphasis added).

Similar language is contained in the Uniform Voidable Transactions Act—and in its predecessor acts—for 100+ years. [Fn. 1]

But actions to avoid debts as fraudulent transfers are rare—and largely unknown, it seems.

A Bad Experience

Boy Scouts of American achieved a confirmed plan of reorganization in its bankruptcy.

That confirmation is now affirmed on appeal by the U.S. District Court in Delaware[fn. 1]—and is heading to the Third Circuit Court of Appeals for further review.

The District Court’s affirming opinion is 155 pages long and highly detailed. This article tries to summarizes the opinion’s highlights—attempting to make the complex clear.

100% Payment Plan

The core of the opinion, around which most everything else revolves, is this: