(Bankr. S.D. Ind. Feb. 16, 2016)

(Bankr. E.D. Ky. Feb. 12, 2016)

On Saturday, February 13, Antonin Scalia, Associate Justice of the United States Supreme Court, passed away.  Although there has been no shortage of media coverage (and brouhaha regarding Justice Scalia’s successor and the process for appointing same), we at the Weil Bankruptcy Blog want to take a moment to pay our respects.  

On November 5, 2015, the United States Bankruptcy Court for the Northern District of California issued a “Memorandum re Plan Confirmation” in In re Bowie, Case No. 15-10144 (Bankr. N.D. Cal. Nov.

A Chapter 11 debtor’s impairment in its reorganization plan of two unsecured claims filed by its former lawyer and accountant “was transparently an artifice to circumvent the purposes of” the Bankruptcy Code (“Code”), held the U.S. Court of Appeals for the Sixth Circuit on Jan. 27, 2016. In re Village Green I G.P., 2016 WL 325163, at *2 (6th Cir. Jan. 27, 2016).

Lending credence to the old adage “if it’s too good to be true, then it probably is,” the Seventh Circuit Court of Appeals recently held that a secured lender was on inquiry notice of possible fraud by its borrower in impermissibly pledging customers’ assets to secure loans. And the penalty was steep—the Court determined the pledge to be a fraudulent transfer to the lender and the lender’s failure to act upon inquiry notice destroyed the lender’s good faith defense. As a result, the lender’s $300 million secured claim was reduced to a near-worthless general unsecured claim. 

Federal bankruptcy law can benefit debtors and creditors alike. Provisions such as the automatic stay and absolute priority ensure a streamlined proceeding, preserving the debtor’s scarce resources for business rehabilitation and creditor repayment.  The alternative, multiple state court debt enforcement actions, would waste the debtor’s time and money on litigation (as valuable as bankruptcy lawyers may be). 

The U.S. Court of Appeals for the Sixth Circuit recently held that a bankruptcy court clearly erred in its finding that a debtor proposed a Chapter 11 plan in good faith, when the secured mortgagee would be paid only in part and very slowly after 10 years with no obligation by the debtor to maintain the building and obtain insurance, while a second class would be paid in full in two payments of $1,200 each over 60 days.

In a decision with significant implications for investors and underwriters alike, the Court of Appeals for the Second Circuit has held that contribution claims arising from the purchase and sale of a security of an affiliate of the debtor can and should be subordinated under section 51

The bankruptcy process is often long and arduous for clients, whether debtor or creditor, and their counsel.  Bankruptcy courts feel the pain, too.  So, when we finally reach the glorious goal of plan confirmation, most revel in the conclusion of the plan process.  Though often considered anathema, appeals of plan confirmation orders are sometimes pursued.  Recognizing the public policy desire for finality in bankruptcy proceedings, the Eighth Circuit applies the “person-aggrieved” doctrine in determining whether an appellant has standing to appeal a plan confirmation or