A debtor’s prepetition causes of action and other legal interests typically become property of the debtor’s estate under section 541 of the Bankruptcy Code. In a chapter 11 case, this often leaves the trustee (or debtor in possession) with the sole authority to pursue – or not pursue – such causes of action postpetition. Although the trustee is generally required to maximize the value of the estate, situations can arise where a trustee refuses to pursue litigation that is otherwise in the estate’s best interest.

Walk a mile in my shoes

Walk a mile in my shoes

Yeah, before you abuse, criticize and accuse

Walk a mile in my shoes

(Elvis Presley, “Walk a Mile in My Shoes”)

Walk a mile in these Louboutins

But they don’t wear these *%!# where I’m from

I’m not hating, I’m just telling you

The ability of a trustee or chapter 11 debtor in possession (“DIP”) to sell bankruptcy estate assets “free and clear” of competing interests in the property has long been recognized as one of the most important advantages of a bankruptcy filing as a vehicle for restructuring a debtor’s balance sheet and generating value. Still, section 363(f) of the Bankruptcy Code, which delineates the circumstances under which an asset can be sold free and clear of “any interest in such property,” has generated a fair amount of controversy.

In Industrial Enterprises of America v. Burtis (In re Pitt Penn Holding Co., Inc.), 2012 WL 204095 (Bankr. D. Del. Jan.

The ability to sell an asset in bankruptcy free and clear of liens and any other competing “interest” is a well-recognized tool available to a trustee or chapter 11 debtor in possession (“DIP”). Whether the category of “interests” encompassed by that power extends to potential successor liability claims, however, has been the subject of considerable debate in the courts. A New York bankruptcy court recently addressed this controversial issue in Olson v. Frederico (In re Grumman Olson Indus., Inc.), 445 B.R. 243(Bankr. S.D.N.Y. 2011).

Section 503(b) of the Bankruptcy Code delineates categories of claims that are entitled to elevated priority as “administrative expenses.” Under section 503(b)(3)(D), administrative expenses include “actual, necessary expenses” incurred by a creditor, indenture trustee, equity holder, or unofficial committee “in making a substantial contribution” in a chapter 11 case.

Over the past five years, courts have issued rulings of potential concern to buyers of distressed debt. Courts have addressed, among other things, “loan to own” acquisition strategies resulting in vote designation; equitable subordination, disallowance, and other lender liability exposure based upon the claim seller’s misconduct; disclosure requirements for ad hoc committees of debtholders; the adequacy of standardized claims-trading agreements; and claim-filing requirements in the era of computerized records.

"Safe harbors" in the Bankruptcy Code designed to insulate nondebtor parties to financial contracts from the consequences that normally ensue when a counterparty files for bankruptcy have been the focus of a considerable amount of scrutiny as part of evolving developments in the Great Recession. One of the most recent developments concerning this issue in the courts was the subject of a ruling handed down by the New York bankruptcy court presiding over the Lehman Brothers chapter 11 cases. In In re Lehman Bros. Holdings, Inc., Judge James M.

In the chapter 1 1 cases of Adelphia Communications Corporation and its subsidiaries, Adelphia sought to assume and assign more than 2,000 franchise agreements in connection with the proposed transfer of its cable operations to affiliates of Comcast Corporation and Time Warner Cable. Numerous local franchising authorities objected, arguing, among other things, that they had a right of first refusal under the agreements, and in some cases also under a local ordinance, to purchase the franchise on substantially the same terms and conditions.

“Safe harbors” in the Bankruptcy Code designed to minimize “systemic risk”—disruption in the securities and commodities markets that could otherwise be caused by a counterparty’s bankruptcy filing—have been the focus of a considerable amount of judicial scrutiny in recent years. The latest contribution to this growing body of sometimes controversial jurisprudence was recently handed down by the U.S. Court of Appeals for the Second Circuit.