“[A] secured creditor [has no] affirmative obligation under the automatic stay to return a debtor’s [repossessed] collateral to the bankruptcy estate immediately upon notice of the debtor’s bankruptcy,” held the U.S. Court of Appeals for the Third Circuit on Oct. 28, 2019. In re Denby-Peterson, 2019 WL 5538570, *1 (3d Cir. Oct. 28, 2019). Affirming the lower courts, the Third Circuit joined “the minority of our sister courts – the Tenth and D.C. Circuits” with its holding.
The Bankruptcy Code (“Code”) “does not limit the allowability of unsecured claims for contractual post-[bankruptcy] attorneys’ fees,” held the U.S. District Court for the District of Delaware on Nov. 26, 2018. In re Tribune Media Company, 2018 WL 6167504 (D. Del. Nov. 26, 2018). In a short and sensible opinion, the district court reversed the bankruptcy court’s disallowance of an undersecured lender’s fees.
The securities safe harbor protection of Bankruptcy Code (“Code”) § 546(e) does not protect allegedly fraudulent “transfers in which financial institutions served as mere conduits,” held the U.S. Supreme Court on Feb. 27, 2018. Merit Management Group LP v. FTI Consulting Inc., 2018 WL 1054879, *7 (2018). Affirming the Seventh Circuit’s reinstatement of the bankruptcy trustee’s complaint alleging the insolvent debtor’s overpayment for a stock interest, the Court found the payment not covered by §546(e) and thus recoverable. The district court had dismissed the trustee’s claim.
An undersecured mortgagee’s “release of [its entire underlying claim] was value obtained ‘in exchange for’ the [pre-bankruptcy] sale of the [debtor’s] property,” held the U.S. Court of Appeals for the Tenth Circuit on Dec. 6, 2016. In re Expert South Tulsa LLC, 2016 U.S. App. LEXIS 21704, at *11 (10th Cir. Dec. 6, 2016). The Tenth Circuit flatly rejected the debtor’s attempt “to set aside as a fraudulent transfer its own sale of real estate that was encumbered by a mortgage far exceeding the sale price.” Id. at *1.
“Reasonably equivalent value” as a defense to a fraudulent transfer suit “can be satisfied with evidence that the transferee (1) fully performed under a lawful, arm’s-length contract for fair market value, (2) provided consideration that had objective value at the time of the transaction, and (3) made the exchange in the ordinary course of the transferee’s business,” held the Supreme Court of Texas on April 1, 2016, in response to a certified question from the U.S. Court of Appeals for the Fifth Circuit. Janvey v. Golf Channel, ___ S.W.3d ___, 2016 WL 1268188, at *2 (Tex.
A “bankruptcy court has discretion to award the [bankruptcy] trustee the actual [fraudulently transferred] property or its pre-transfer value,” held the U.S. Court of Appeals for the Seventh Circuit on Oct. 23, 2015. Hebenstreit v. Kaur, 2015 WL 6445461, at *2 (7th Cir. Oct. 23, 2015).
A settlement providing for dismissal of a Chapter 11 case and distribution of estate property “that deviates from the Bankruptcy Code’s priority” scheme is permissible, held a divided panel of the U.S. Court of Appeals for the Third Circuit on May 21, 2015. Official Committee of Unsecured Creditors v. CIT Group/Business Credit Inc. (In re Jevic Holding Corp.), 2015 WL 2403443, at *1 (3d Cir. May 21, 2015) (2- 1) (“Jevic”).
The United States District Court for the District of Delaware, on July 21, 2014, held that an indenture trustee’s late filing of senior claims did not waive the lenders’ contractual subordination rights, reversing the bankruptcy court. In re Franklin Bank Corporation, 2014 U.S. Dist. LEXIS 98327 (D. Del. July 21, 2014). Nor did the senior trustee’s late filing show inequitable conduct warranting equitable subordination of the tardily filed senior claims to timely filed junior claims.
The U.S. Court of Appeals for the Seventh Circuit held on Aug. 26, 2013 that an investment manager’s “failure to keep client funds properly segregated” and subsequent pledge of those funds “to secure an overnight loan” to stay in business may have constituted: (a) a fraudulent transfer to the lender; and (b) grounds for equitably subordinating the lender’s $312 million secured claim. In re Sentinel Management Group, Inc., 2013 WL 4505152, *1 (7th Cir. Aug. 26, 2013) (“Sentinel II”).
The U.S. Court of Appeals for the Seventh Circuit, on Feb. 14, 2013, held that an insider of a Chapter 11 partnership debtor cannot avoid the “competition rule” in a new-value reorganization plan. The debtor’s equity owner arranged for his wife, also an “insider,” to contribute new value to obtain the equity of the reorganized debtor. In re Castleton Plaza, LP, — F.3d –––, 2013 WL 537269 at *1 (7th Cir., Feb. 14, 2013).