In a recent ruling likely to be of great interest to debtors and creditors alike, the United States District Court for the Northern District of Georgia (the “Court”) ruled in MC Asset Recovery v. Southern Company1 (the “Southern Co. Litigation”) that fraudulent transfer claims held by a bankruptcy trustee or debtor in possession under the Bankruptcy Code continue to be viable at the conclusion of a bankruptcy case, even if all creditors’ claims have already been satisfied in full pursuant to a plan of reorganization.

Coping with the Insolvent Business Partner

In Litton Loan Servicing, LP v. Garvida, No. 04-17846 (9th Cir. BAP July 31, 2006), the Bankruptcy Appellate Panel of the U.S. Court of Appeals for Ninth Circuit addressed two independent but related questions: (1) what procedure is necessary to object to a properly filed proof of claim, and (2) who bears the burden of proof, and the correlative risk of nonpersuasion, with regard to a disputed claim.

Following the rule that swap agreements should be netted after contract termination, a New York bankruptcy court has held that such agreements also should be netted following rejection in bankruptcy.

“Although rejection of an agreement does not equal termination,” Bankruptcy Judge Arthur J. Gonzalez acknowledged in In re Enron Corp., 349 B.R. 96 (Bankr. S.D.N.Y. Aug. 2, 2006), “this does not affect the determination of…rejection damages. Termination of swap agreements generally requires that the parties’ positions be netted.”

“Rejection leads to a similar result,” he stated.

Can the nondebtor party to an executory contract withhold services to the debtor postpetition if the debtor breached the contract prepetition?

Many view this as a settled area of bankruptcy law, and believe that the answer is “no” as long as the debtor is performing postpetition. Commentators of this view question how a debtor could ever reorganize if nondebtors did not have to perform under contracts postpetition, particularly if the debtor’s business is entirely dependant upon the contract at issue.

The ability of a creditor whose claim is “impaired” to vote on a chapter 11 plan is one of the most important rights conferred on creditors under the Bankruptcy Code. The voting process is an indispensable aspect of safeguards built into the statute designed to ensure that any plan ultimately confirmed by the bankruptcy court meets with the approval of requisite majorities of a debtor’s creditors and shareholders and satisfies certain minimum standards of fairness.

One of the most significant considerations in a prospective chapter 11 debtor’s strategic pre-bankruptcy planning is the most favorable venue for the bankruptcy filing.

As part of the 2005 revisions of the Bankruptcy Code, Congress greatly enhanced the priority of claims asserted by suppliers of goods to debtors in the 20-day period immediately prior to a debtor’s bankruptcy filing by enacting new section 503(b)(9). This new provision raises several interesting issues, some of which were addressed by two recent cases examining the question of when such claims are to be paid.

The Language of Section 503(b)(9)

The U.S. Supreme Court has issued two bankruptcy rulings so far in 2007. On February 21, 2007, the Court ruled in Marrama v. Citizens Bank of Massachusetts that a debtor who acts in bad faith in connection with filing a chapter 7 petition may forfeit the right to convert his case to a chapter 13 case. On March 20, 2007, the Court ruled in Travelers Casualty & Surety Co. v. Pacific Gas & Electric Co.

On March 7, 2007, the Second Circuit Court of Appeals held that "in the Chapter 11 context, whether a pre-plan settlement's distribution plan complies with the Bankruptcy Code's priority scheme will be the most important factor for a Bankruptcy Court to Consider in approving a settlement under Bankruptcy Rule 9019." In re Iridium Operating LLC, No. 05-2236 (2d Cir. March 7, 2007)