An assignment for benefit of creditor (“ABC”) is, historically, a nonjudicial process for administering the affairs of a failed business. ABC laws are rooted in English common law and predate enactment of federal bankruptcy laws in the U.S.[Fn. 1]

An ABC is made by a formal, voluntary transfer of most-or-all of a business’s assets to an assignee, in trust, to apply the property or its proceeds to the payment of debts and to return any surplus to the debtor.

On April 23, 2024, the American Bankruptcy Institute’s Subchapter V Task Force issued its Final Report.

This article is the first in a series that summarizes and condenses the Task Force’s Final Report into “a nutshell.” This article:

• provides background information and data on Subchapter V.[Fn. 1]

Overall

Debtor’s Chapter 11 counsel cannot be compensated for services performed after a trustee is appointed and the debtor removed from possession.

• That’s the rule of law in the Fifth Circuit and in a not-for-publication decision of the Ninth Circuit’s Bankruptcy Appellate Panel, based on a U.S. Supreme Court ruling.

So . . . the question is, what about Subchapter V? Does that same no-compensation rule apply in Subchapter V when the debtor is removed from possession?

Ninth Circuit BAP Opinion

Bankruptcies with large tort claims are common:

• some involve a limited number of claimants (e.g., a drunk driver hits a bus or a restaurant serves bad food one evening); and
• others have large numbers of claimants, some of whom won’t even be known for at least another decade (e.g., asbestos cases).

Often in tort bankruptcies, the total amount of claims overwhelms the debtor’s ability to pay: i.e., existing assets, insurance coverages and projected future income streams are, simply, insufficient.

The opinion is Bruce v. Citigroup Inc., Case No. 22-1000, decided August 2, 2023, by the U.S. Second Circuit Court of Appeals.

The opinion addresses this question:

You don’t see this very often: a dispute over the confidentiality of mediation communications.

But such a dispute recently happened in In re Barretts Minerals, Inc., Case No. 23-90794, Southern Texas Bankruptcy Court. And the result is this: mediation confidentiality remains alive and well.

In re Barretts Minerals is a mass-tort asbestos case. And Debtor is pursuing confirmation of a bankruptcy plan under § 524(6). Mediation efforts are in progress.

The existence of a bankruptcy option is a good thing for any debtor-creditor situation that is highly stressed—whether the bankruptcy option is used or not.

This is especially true in mass-tort cases where a potential exists for (i) hugely-disparate results for similarly situated plaintiffs, and (ii) debilitating delays in the progress of litigation.

Over the years, I’ve heard lots of people say, “Bankruptcy abuse is a huge problem,” as a self-evident and undeniable proposition.

But here’s the thing. Debtors who try to abuse the bankruptcy system rarely get away with it. That’s because there are too many gatekeepers—and no debtor can fool them all!

The gatekeepers are debtor’s counsel, creditors and their attorneys, U.S. Trustees, bankruptcy courts, and appellate courts.

Over the years, I’ve heard lots of people say, “Bankruptcy abuse is a huge problem,” as a self-evident and undeniable proposition.

But here’s the thing. Debtors who try to abuse the bankruptcy system rarely get away with it. That’s because there are too many gatekeepers—and no debtor can fool them all!

The gatekeepers are debtor’s counsel, creditors and their attorneys, U.S. Trustees, bankruptcy courts, and appellate courts.

Over the years, I’ve heard lots of people say, “Bankruptcy abuse is a huge problem,” as a self-evident and undeniable proposition.

But here’s the thing. Debtors who try to abuse the bankruptcy system rarely get away with it. That’s because there are too many gatekeepers—and no debtor can fool them all!

The gatekeepers are debtor’s counsel, creditors and their attorneys, U.S. Trustees, bankruptcy courts, and appellate courts.

This is the third of a multi-part series of articles on how gatekeepers prevent abuse. This article focuses on U.S. Trustees.