The ability to avoid fraudulent or preferential transfers is a fundamental part of U.S. bankruptcy law. However, when a transfer by a U.S. entity takes place outside the U.S. to a non-U.S. transferee—as is increasingly common in the global economy—courts disagree as to whether the Bankruptcy Code’s avoidance provisions apply extraterritorially to avoid the transfer and recover the transferred assets. A pair of bankruptcy court rulings handed down in 2017 widened a rift among the courts on this issue.
Creditors lacking liens to secure their claim can fare poorly in a bankruptcy case. The “absolute priority rule” is a bedrock principle of bankruptcy law and provides that a creditor at a particular rung of the claim priority hierarchy must be paid in full before any money flows down to junior creditors. Secured creditors reside near the top of the hierarchy, followed by administrative expense claimants, priority claimants and general unsecured creditors.
Court decisions about failed Ponzi schemes often make good reading. The fact patterns always involve actual fraud. The illicit schemes give rise to insightful discussions on various legal concepts.
The Illinois Appellate Court for the First District recently held that the trial court correctly affirmed a judicial sale and denied a motion to reconsider where an intervenor and alleged owner of the property claimed the mortgage was wiped out by the death of the sole mortgagor, who was only a joint tenant in the property at the time the mortgage was executed.
Employees who sue their employers must disclose that lawsuit if they file for bankruptcy—right? Maybe not. In Slater v. U.S. Steel Corp., the Eleventh Circuit overruled prior precedent and impaired a valuable defense for early dismissal or settlement with bankrupt plaintiffs. This decision will affect strategy for employers that face litigation from bankrupt plaintiffs.
Legal Background
The Sixth Circuit affirms the bankruptcy court’s interpretation of the creditor’s settlement agreement with the debtor. The agreement provided that the creditor released his claims against the city and the individual officers. The plan only provided for a small percentage to be paid on the claim, but stated claims against individual officers were not discharged by the plan. The creditor argued the settlement agreement should not be held to have released claims against the individual officers, but the court finds the plain language of the agreement makes clear such claims were released.
On September 18, in an en banc review, the Court of Appeals for the Eleventh Circuit overruled, in part, seminal casesBarger v. City of Cartersville, 348 F.3d 1289 (11th Cir. 2003) and Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282 (11th Cir. 2002), adopting a totality-of-the-circumstances analysis when facing questions of judicial estoppel.
The ability of a trustee or chapter 11 debtor-in-possession ("DIP") to sell bankruptcy estate assets "free and clear" of competing interests in the property has long been recognized as one of the most important advantages of a bankruptcy filing as a vehicle for restructuring a debtor’s balance sheet and generating value. Still, section 363(f) of the Bankruptcy Code, which delineates the circumstances under which an asset can be sold free and clear of "any interest in such property," has generated a fair amount of controversy.