On February 27, 2018, the U.S. Supreme Court issued a highly anticipated ruling resolving a long-standing circuit split over the scope of the Bankruptcy Code’s "safe harbor" provision exempting certain securities transaction payments from avoidance as fraudulent transfers. In Merit Management Group LP v. FTI Consulting Inc., 2018 BL 65569, No. 16-784 (U.S. Feb.

In First Southern Nat’l Bank v. Sunnyslope Hous. LP (In re Sunnyslope Hous. LP), 2017 BL 216965 (9th Cir. June 23, 2017), the U.S. Court of Appeals for the Ninth Circuit held en banc that, in determining whether a chapter 11 plan may be confirmed over the objection of a secured creditor, the creditor’s collateral must be valued in accordance with the debtor’s intended use of the property, even if the property would realize more in a foreclosure sale because of the existence of restrictive covenants.

Debtors beware: The Sixth Circuit Court of Appeals has recently expanded the ability of parties to appeal a bankruptcy court's approval of a sale of assets notwithstanding the statutory mootness rule set forth in section 363(m) of the Bankruptcy Code.

For the benefit of our clients and friends investing in European distressed opportunities, our European Network is sharing some current developments.

Recent Developments

In Deutsche Bank Trust Co. Ams. v. Large Private Beneficial Owners (In re Tribune Co. Fraudulent Conveyance Litig.), 818 F.3d 98 (2d Cir. 2016), the U.S. Court of Appeals for the Second Circuit held that the “safe harbor” under section 546(e) of the Bankruptcy Code for settlement payments and for payments made in connection with securities contracts preempted claims under state law by creditors to avoid as fraudulent transfers pre-bankruptcy payments made to shareholders in connection with a leveraged buyout (“LBO”) of the debtor.

On May 16, 2016, the U.S. Supreme Court decided Husky International Electronics, Inc. v. Ritz, No. 15-145, holding that the "actual fraud" bar to discharge under section 523(a)(2)(A) of the Bankruptcy Code encompasses an individual debtor's knowing receipt of fraudulently transferred property.

Statutory Background

In December 2013, the U.S. Court of Appeals for the Second Circuit held as a matter of first impression in Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), 737 F.3d 238 (2d Cir. 2013), that section 109(a) of the Bankruptcy Code, which requires a debtor “under this title” to have a domicile, a place of business, or property in the U.S., applies in cases under chapter 15 of the Bankruptcy Code.

In a recent decision, the United States Court of Appeals for the Eleventh Circuit reaffirmed its position sanctioning, under appropriate circumstances, nonconsensual third party release provisions in chapter 11 plans. In SE Prop. Holdings, LLC v. Seaside Eng’g & Surveying, Inc.(In re Seaside Eng’g & Surveying, Inc.), 780 F.3d 1070 (11th Cir. 2015), the Eleventh Circuit affirmed bankruptcy and district court decisions approving a debtor’s chapter 11 plan that released the debtor’s former principals over the objection of a noninsider equity holder.

Perhaps surprisingly given the rarity of such cases, a handful of high-profile court rulings recently have addressed whether a solvent chapter 11 debtor is obligated to pay postpetition, pre-effective date interest ("pendency interest") to unsecured creditors to render their claims "unimpaired" under a chapter 11 plan and, if so, at what rate.

In In re Bernard L. Madoff Investment Securities LLC, 12 F.4th 171 (2d Cir. 2021), the U.S. Court of Appeals for the Second Circuit revived litigation filed by the trustee administering the assets of defunct investment firm Bernard L. Madoff Inv. Sec. LLC ("MIS") seeking to recover hundreds of millions of dollars in allegedly fraudulent transfers made to former MIS customers and certain other defendants as part of the Madoff Ponzi scheme.