City of Chester is the oldest city in Pennsylvania, incorporated as a borough in 1701 and as a city in 1866, and is located on the Delaware River between Philadelphia and Wilmington.
Unfortunately, the City is also in Chapter 9—having filed bankruptcy on November 10, 2022.
The City’s bankruptcy filing causes a ruckus because:
On March 17, 2023, the parent of Silicon Valley Bank (SVB) filed for Chapter 11 protection in the Southern District of New York. Unlike SVB itself, its parent, as a bank holding company, was eligible for Chapter 11. In the wake of the recent SVB and Signature Bank failures, it is important for those with potential claims against the parents of failed banks to understand the distinct rules and issues in bank holding company bankruptcies.
The Bank of England (BoE) has announced that Silicon Valley Bank UK Limited (SVB UK) will be sold to HSBC UK Bank Plc (HSBC). This is being carried out under the aegis of the Special Resolution Regime (SRR) — a bespoke pre-insolvency regime applicable to failing banks1 — set forth in the Banking Act 2009 (the Act).
This alert provides background on the failure of Silicon Valley Bank and explains significant recent developments, including the subsequent failure of Signature Bank and the U.S. government’s announcement that the Federal Deposit Insurance Corporation (FDIC) will make whole all depositors of both institutions. This alert also describes the new program simultaneously announced by the Federal Reserve to provide additional liquidity to the banking industry.
Run on Silicon Valley Bank
The U.S. Supreme Court does not like bankruptcy benefits for individual debtors. It really doesn’t.
An example from a couple years ago is Fulton v. City of Chicago, where the U.S. Supreme Court finds a way to declare:
Can a corporate debtor be denied a Subchapter V discharge under § 523(a), despite this § 523(a) language (emphasis added):
- “A discharge under section . . . 1192 [Subchapter V] . . . does not discharge an individual debtor from . . . ”?
A recent Bankruptcy Court opinion (in Avion Funding) says, essentially, this: “No! You can’t paint over explicit statutory language.”[Fn. 1]
Such recent opinion:
The U.S. Supreme Court issues its first-ever opinion—of any type—on August 3, 1791. [Fn. 1] But it does not address a bankruptcy question for quite some time thereafter. In fact, the first U.S. law on the subject of bankruptcy did not exist until the Bankruptcy Act of 1800.
First Bankruptcy Opinion
Here’s a hard-knocks rule:
- When you can’t or won’t explain the true reason for taking a position in negotiations or litigation, distrust and suspicion of the worst-possible motives will follow.
An Exhibit A for this rule is an opinion issued February 9, 2023, in In re Heaven’s Landing, LLC, Case No. 20-21350, Northern Georgia Bankruptcy Court (Doc. 145).
Here are illustrative statements from that opinion:
“Consistently, the highest percentage of filings in the federal docket is bankruptcy cases, which can be up to 75% of filings.”
That’s a conclusion by the authors of a 2014 study.[Fn. 1]
Bankruptcy-Specific
Here are bankruptcy-specific details and explanations from that same study:
On January 13, 2023, the U.S. Supreme Court grants the Petition for a writ of certiorari in Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, Supreme Court Case No. 22-227, and on January 31, 2023, the Supreme Court enters this order therein: “Set for Argument on Monday, April 24, 2023.”