October 17, 2013, will mark the eighth anniversary of the enactment of chapter 15 of the U.S. Bankruptcy Code as part of the comprehensive U.S. bankruptcy-law reforms implemented in 2005. Chapter 15, which governs cross-border bankruptcy and insolvency cases, is patterned after the Model Law on Cross-Border Insolvency (the “Model Law”), a framework of legal principles formulated by the United Nations Commission on International Trade Law (“UNCITRAL”) in 1997 to deal with the rapidly expanding volume of international insolvency cases.

The U.S. Supreme Court handed down its first bankruptcy decision of 2013 on May 13. In a unanimous ruling, the court held in Bullock v. BankChampaign N.A., 2013 BL 125909 (U.S. May 13, 2013), that the term “defalcation” for purposes of denying discharge of a debt under section 523(a)(4) of the Bankruptcy Code includes a “culpable state of mind” requirement involving knowledge of, or gross recklessness with respect to, the improper nature of a fiduciary’s behavior.

You might think that a company in bankruptcy wouldn’t be able to give its CEO a multi-million-dollar severance payment. 

But just because a company is in bankruptcy doesn’t necessarily mean it doesn’t have any money – it just means it doesn’t have enough to pay all of its debts, or to function as a continuing concern.  The company may, in fact, have the means to make a rather generous severance payment – like the $20 million American Airlines is proposing to pay its CEO, Tom Horton, as the airline comes out of Chapter 11 and into a merger with US Airways. 

A New York state court recently denied a motion to dismiss an action brought by a reorganized debtor against the former chair of the official committee of unsecured creditors in the debtor's chapter 11 case.¹  The decision is noteworthy for its holding that the reorganized debtor had standing to commence an action against the former committee member even though the claim was not expressly listed as an asset of the estate in the debtor's chapter 11 disclosure statement.

Background

On April 30, 2013, the United States Court of Appeals for the Ninth Circuit held that the bankruptcy court has authority to recharacterize as equity, rather than debt, advances of funds made purportedly as a loan to the recipient prior to its bankruptcy. In re Fitness Holdings International, Inc., --- F.3d ----, 2013 WL 1800000 (9th Cir. 2013).

On May 10, 2013, Judge Brendan Linehan Shannon of the United States Bankruptcy Court for the District of Delaware rejected an attempt to hold a private equity sponsor liable for its portfolio company’s alleged violations of the federal Worker Adjustment and Retraining Notification Act (the “WARN Act”) under the “single employer” theory of liability.

The United States District Court for the Northern District of Mississippi denied the motion of defendant ACA Financial Guaranty Corporation (ACA) to dismiss a class action complaint, finding that the issues were previously adjudicated adversely to ACA in the New York Supreme Court where a companion case, Oppenheimer v. ACA Financial Guaranty Corporation, is currently pending.

The United States Bankruptcy Court for the Southern District of New York granted motions to dismiss involuntary Chapter 7 petitions filed against TPG Troy LLC and T3 Troy LLC (the Troy Entities). Petitioners filed numerous actions against the Troy Entities in the United States and Europe to recover money they alleged was owed in connection with the default of payment-in-kind and subordinated notes.

Under Arizona law, does a secured creditor need to file a deficiency action within 90 days after a trustee’s sale to preserve the unsecured portion of its claim in a bankruptcy case? Or is filing (or amending) a proof of claim sufficient? Two recent cases out of Arizona provide conflicting answers.

The United States District Court for the Northern District of Georgia, applying Georgia law, has held that a default judgment against an insured in a rescission action precluded any subsequent recovery under the policy by a judgment creditor of the insured. Old Republic Nat’l Title Ins. Co. v. Hartford Accident & Indem. Co., 2013 WL 1943427 (N.D. Ga. May 9, 2013).