The United States Court of Appeals for the Third Circuit has issued a decision that provides an important summary concerning the circumstances under which state law causes of action asserted between nondebtor parties are sufficiently interconnected with claims brought against a debtor to be considered “core proceedings,” which may be determined as part of a bankruptcy case. In re Exide Technologies, 544 F.3d 196 (3d. Cir. 2008).
Last year, the Ninth Circuit BAP determined that the Bankruptcy Code does not permit a secured creditor to credit bid its debt, and purchase estate property free and clear of non-consenting junior liens, outside a plan of reorganization. Uncertainty resulting from the decision in Clear Channel Outdoor, Inc. v. Nancy Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. B.A.P. 2008) may chill bidding and asset sales in the Ninth Circuit.
In a case that has broad implications for trustees and taxing authorities embroiled in preference avoidance actions, the Bankruptcy Court for the Western District of Missouri weighed in on the parameters of a trustee’s ability to avoid preferential sales and use tax payments under section 547 of the Bankruptcy Code.
Overdue Tax Payments
The U.S. Court of Appeals for the Seventh Circuit ruled in October that a creditor’s misconduct must result in harm to other creditors to justify the equitable subordination of a claim under Section 510(c) of the Bankruptcy Code.
Introduction
In In re Entringer Bakeries, Inc.,1 the United States Court of Appeals for the Fifth Circuit affirmed the viability of the “earmarking doctrine” as a judicially-created defense to a preference action under section 547(b) of the Bankruptcy Code.
Introduction:
With the country officially in a recession and the lack of available refinancing options continuing, more and more businesses are faced with the realities of foreclosure. While foreclosure often allows a business to wipe the debt slate clean with respect to the foreclosed property, it can also create unintended tax consequences as well as tax planning opportunities.
Recourse v. Non-Recourse Debt
As the economy worsens and the value of corporate assets declines, unsecured creditors are finding that very little, if anything, is left for them at the bankruptcy table after the secured creditors have taken as much as they can from a debtor’s assets. Now, after a period of having copious credit available on attractive terms, debtors are going into bankruptcy without sufficient assets to pay even their secured creditors in full. In such circumstances, prospects for unsecured creditors are bleak indeed.
The Sixth Circuit recently held that section 2-702(3) of the Uniform Commercial Code (the "UCC"), which permits good faith purchasers to defeat a valid right to reclaim, does not allow a secured creditor to defeat that right.[1] The Sixth Circuit found that the security interest held by a DIP lender could not be used to defeat the right of a reclaiming creditor under the UCC or pre-BAPCPA section 546(c) of the Bankruptcy Code. This decision may impact the way bankruptcy courts consider reclamation claims under revised section 546(c) of the Bankruptcy Code.