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.

The Supreme Court unanimously held on March 20, 2007, that an unsecured lender could recover contractbased legal fees “incurred in [post-bankruptcy] litigation” on “issues of bankruptcy law.” Travelers Casualty & Surety Co. of America v. Pacific Gas & Elec. Co., __ U.S. __ (March 20, 2007). Op., at 1, 3. In doing so, the court vacated a summary ruling by the Ninth Circuit last year. 167 Fed. Appx. 593 (9th Cir. 2006) (held, “attorney fees… not recoverable in bankruptcy for litigating issues ‘peculiar to federal bankruptcy law.’“), citing In re Fobian, 951 F.2d 1149, 1153 (9th Cir.

Over the last several weeks, Judge Allan L. Gropper of the United States Bankruptcy Court for the Southern District of New York has issued two rulings in the Northwest Airlines case that threaten to alter significantly the consequences to distressed investors of serving on ad hoc committees in bankruptcy cases.

I. In re Iridium Operating LLC

A court-approved pre-plan settlement that would have resolved a dispute between a Chapter 11 creditors’ committee and the debtor’s secured lenders over the lenders’ liens was vacated by the U.S. Court of Appeals for the Second Circuit on March 5. Motorola, Inc. v. Official Committee of Unsecured Creditors and J.P. Morgan Chase Bank, N.A. (In re Iridium Operating LLC). The settlement also would have funded massive litigation against the debtor’s former parent, Motorola Inc.

Motorola’s Successful Argument

In re Corporateand Leisure Event Productions, Inc.,1 the Bankruptcy Court for the District of Arizona held that a state court lacks the power to enter an order in a receivership proceeding preventing the receivership defendant from filing a petition in bankruptcy.

Coping with the Insolvent Business Partner

A company’s failure to meaningfully market its assets led to the dismissal of its attempted chapter 11 reorganization. As a result, a Massachusetts court held in a detailed opinion that an acquiring company was the successor to the company it acquired, and therefore liable for an $8.8 million debt.