Exculpation provisions in operating agreements must be carefully crafted in order to protect members, managers, directors and officers for breaches of fiduciary duties. In In re Simplexity, LLC, the Chapter 7 trustee sued the former officers and directors (who were also members and/or managers) for failing to act to preserve going concern value and exposing the debtors to WARN Act claims. The defendants argued the exculpation language in the operating agreements shielded against breach of fiduciary duty liability.

A few thoughts on Tuesday’s oral arguments before the U.S. Supreme Court in the litigation over whether Puerto Rico’s Public Corporations Debt Enforcement and Recovery Act, an insolvency statute for certain of its government instrumentalities, is void, as the lower federal courts held, under Section 903 of the U.S. Bankruptcy Code:

The First Circuit Court of Appeals in In re SW Boston Hotel Venture, LLC, 2014 U.S. App. LEXIS 6768 (1st Cir. Apr. 11, 2014) recently ruled on a number of issues critical to valuing a secured claim in bankruptcy. Specifically, the court 1) endorsed the use of a “flexible approach” to value collateral under the circumstances of this case, 2) recognized that the date collateral should be valued is the lender’s burden to prove, and 3) confirmed that the pre-petition agreement’s default interest rate should generally be used to determine the post-petition interest rate.

Electric vehicle battery manufacturer A123, which received a $249 million stimulus grant from the Department of Energy, filed for Chapter 11 bankruptcy protection October 15 in the U.S. Bankruptcy Court for the District of Delaware to facilitate an agreement in which Johnson Controls will purchase its automotive business assets for $125 million. The company has drawn down roughly $131 million of its grant, and has faced problems with batteries supplied to Fisker as well as low demand for electric vehicles.

In a decision that may have significant practical implications to the practice of bankruptcy law, the U.S. Supreme Court recently declared, on constitutional grounds, that a bankruptcy court cannot exercise jurisdiction over a debtor’s state law counterclaims, thus considerably limiting the ability of the bankruptcy court to fully and finally adjudicate claims in a bankruptcy case. Stern v. Marshall, No. 10-179 (June 23, 2011).

Until recently, courts in the Ninth Circuit have generally followed the minority view that non-debtor releases in a bankruptcy plan are prohibited by Bankruptcy Code Section 524(e), which provides that the “discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.” In the summer of 2020, the Ninth Circuit hinted that its prohibition against non-debtor releases was not absolute, when the court issued its decision in Blixseth v. Credit Suisse, 961 F.3d 1074 (9th Cir.

Transfers and transactions up to ten years old may be scrutinized, unwound and recovered by a trustee, the bankruptcy court sitting in Massachusetts recently held in the NECCO (think chalky wafer candy) bankruptcy case. The ruling, in a case of first impression in Massachusetts, expands the reach back period from the typical four-year period for fraudulent transfer recovery, so long as the IRS is a creditor in the case.

It is very common for bankruptcy court orders to provide that the court retains jurisdiction to enforce such orders. Similarly, chapter 11 confirmation orders routinely provide that the bankruptcy court retains jurisdiction over all orders previously entered in the case. The enforceability of these “retention of jurisdiction” provisions, however, will not rest on the plain language in the order but on the bankruptcy court’s statutory jurisdiction.

In the Ultimate Escapes bankruptcy case, the U.S. District Court for the District of Delaware recently held that the “business judgment rule” may protect fiduciaries who negotiate and enter into unconventional financing agreements in an attempt to save the company. In short, a failed business strategy by itself does not lead to liability for breach of fiduciary duty.

Debtors must provide known creditors with actual notice of a claims bar date if they want the bar date to apply to those creditors. Such was the holding in In re Majorca Isles Master Association, Inc., Case No. 12-19056-AJC, Dkt. No. 222 (Bankr. S.D. Fla. March 27, 2014), where the bankruptcy court stated that when both a debtor and a creditor are “guilty in the handling of a claim and the [d]ebtor is aware of the creditor’s claim, then a tie goes to the creditor[,]” and the creditor’s claim will be allowed.