German Insolvency Law – a Leap Forward

Creditors have often complained that German insolvency law does not give them sufficient influence in insolvency proceedings. On 1 March 2012 new amendments to the German bankruptcy code came into force which go some way towards ameliorating this concern and make a host of changes which should improve German insolvency law to facilitate an insolvency culture which facilitates reorganisation rather than liquidation of assets.  

The recent financial crisis has resulted in events that once seemed impossible. Recently, in the federal government’s attempts to bail out the auto industry, an event unprecedented in American history almost occurred: the forced subordination of existing secured debt to new loans issued by the federal government. If the government were to revive this concept in future bailouts and attempt to subordinate the liens of secured creditors, a suit challenging the constitutionality of such action would have a good chance of success.

The Potential For Forced Subordination

In Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Company, the Supreme Court held that federal bankruptcy law does not automatically disallow claims for post-petition attorneys' fees incurred by a prepetition unsecured creditor simply because such fees are incurred in litigating issues arising under the Bankruptcy Code. The Court, however, left open the issue whether such claims may be disallowed on the basis that the attorneys' fees were incurred post-petition.

In July 2006, after a long and unsuccessful attempt to reach an out-of-court restructuring of the indebtedness of the Eurotunnel group of companies, the managers of the Eurotunnel group requested the opening of main insolvency proceedings for all the companies in France.

In 1930, Clarence Bennett’s wealthy uncle died. He left behind shares in Berry Holding Company ("BHC") that were subdivided into three groups. Bennett was the beneficiary of dividends paid out of one of these groups and, for many years, received his share of dividends from BHC. In 1986, BHC became Berry Petroleum Company ("BPC"), a publicly traded company, and Bennett’s interest changed.

U.S. bankruptcy law permits debtors-in-possession and trustees to sell assets free and clear of claims, liens and other interests. But a federal judge in New York ruled recently that a purchaser does not necessarily buy free and clear when a product manufactured pre-bankruptcy causes injury after a sale closes. Morgan Olson L.L.C. v. Frederico (In re Grumman Olson Indus., Inc.), No. 11 Civ. 2291, 2012 U.S. Dist. LEXIS 44314 (S.D.N.Y. Mar. 29, 2012) (JPO). In this situation, the purchaser can remain liable for injuries caused by the asset purchased from the debtor.

On August 23, 2019, President Trump signed H.R. 3311 into law. The goal of the Small Business Reorganization Act is to facilitate reorganization among small businesses. One of my fellow bloggers has provided a summary that you can read here.

On August 30, 2011, the United States Bankruptcy Court for the Southern District of New York approved the Disclosure Statement for the Revised Second Amended Joint Chapter 11 Plan of Lehman Brothers Holdings, Inc. and its affiliated debtors (collectively, the "Debtors"). The Bankruptcy Court's approval of the Disclosure Statement will permit the Debtors to begin soliciting votes to accept the Plan and is a significant step forward in the Debtors' efforts to achieve resolution of the nation's largest-ever bankruptcy.

Section 548 of the Bankruptcy Code enables trustees to avoid certain pre-bankruptcy transfers of “an interest of the debtor in property,” where the transfer was intended to defraud creditors or where the transfer was made while the debtor was insolvent and was not for reasonably equivalent value. 11 U.S.C. § 548(a). Section 544 of the Bankruptcy Code enables trustees to avoid a transfer of “property of the debtor” where a creditor of the debtor would have such a right under state law. 11 U.S.C. § 544(a).

Consider these facts. A debtor in bankruptcy sued two parties for breach of contract. The debtor assigned its rights and interests in the cause of action to another entity. The defendants moved to dismiss the lawsuit, arguing that the court now lacked jurisdiction over the case. They asserted that the debtor’s assignment of the cause of action destroyed the bankruptcy court’s “related to” jurisdiction. Who wins?