The question of what happens to an international arbitration when a party files for bankruptcy in the United States is arising with increasing frequency. In the United States, the public policy interests that underlie both bankruptcy and arbitration legislation sometimes clash on critical points. The federal courts have developed competing approaches to addressing these issues. This fractured caselaw introduces uncertainty at the intersection of arbitration and bankruptcy.

US Bankruptcy Code

As part of the overhaul of bankruptcy laws in 1978, Congress for the first time included the definition of "claim" as part of the Bankruptcy Code. A few years later, in Avellino & Bienes v. M. Frenville Co. (In re M. Frenville Co.), the Third Circuit became the first court of appeals to examine the scope of this new definition in the context of the automatic stay.

"Safe harbors" in the Bankruptcy Code designed to insulate nondebtor parties to financial contracts from the consequences that normally ensue when a counterparty files for bankruptcy have been the focus of a considerable amount of scrutiny as part of evolving developments in the Great Recession. One of the most recent developments concerning this issue in the courts was the subject of a ruling handed down by the New York bankruptcy court presiding over the Lehman Brothers chapter 11 cases. In In re Lehman Bros. Holdings, Inc., Judge James M.

Preservation of favorable tax attributes, such as net operating losses that might otherwise be forfeited under applicable nonbankruptcy law, is an important component of a business debtor's chapter 11 strategy. However, if the principal purpose of a chapter 11 plan is to avoid paying taxes, rather than to effect a reorganization or the orderly liquidation of the debtor, the Bankruptcy Code contains a number of tools that can be wielded to thwart confirmation of the plan.

Introduction

Earlier this month, the Liquidating Trustee in the Intermet bankruptcy filed preference actions against various defendants. This post will look at the nature of Intermet's business, why the company filed for bankruptcy and the circumstances behind the formation of the Liquidating Trust that is pursuing the preference actions.

Introduction

The automatic stay is one of the most fundamental bankruptcy protections. It enjoins the initiation or continuance of any action by any creditor against the debtor or the debtor’s property, including causes of action possessed by the debtor at time of the bankruptcy filing. The automatic stay offers this protection while bringing all of the debtor’s assets and creditors into the same forum, the bankruptcy court.

Introduction

The recent decision in the case of In re Erickson Retirement Communities, LLC, 425 B.R. 309 (Bankr. N.D. Tex. 2010) provides ammunition for those opposing the appointment of an examiner in a debtor’s Chapter 11 case and a cautionary tale for lenders entering into subordination agreements.

The Court of Appeals for the Fifth Circuit recently held that Chapter 15 of the Bankruptcy Code does not prohibit a foreign representative from bringing an avoidance action so long as the claim for relief is based on the substantive laws of the jurisdiction where the foreign proceeding is located. The Fifth Circuit’s decision is consistent with the dual policy considerations of comity and predictability. Fogerty v. Petroquest Res., Inc. (In re Condor Ins. Ltd.), 601 F.3d 319 (5th Cir. 2010).

Background

Title II of the Act, designated "Orderly Liquidation Authority" – effective July 21, 2010 – establishes what is intended to be an orderly liquidation process for "financial companies" whose collapse or potential collapse are determined to constitute a risk to the financial system as a whole. Such systemically significant institutions would be liquidated under these new procedures, rather than being treated under existing bankruptcy laws. (The intent of Act is that most-failing financial companies will continue to be administered under existing bankruptcy laws.)