In 2019, we began following a Circuit split regarding a secured creditor’s obligation to return collateral that it lawfully repossessed pre-petition after receiving notice of a debtor’s bankruptcy filing.
In January 2020, we analyzed a split among the Circuit Courts regarding whether a non-debtor holding a debtor’s property on the petition date has an affirmative obligation under section 362(a)(3) of the Bankruptcy Code to return that property to the debtor immediately following the filing of the bankruptcy petition.
If a creditor is holding property of a party that files bankruptcy, is it “exercising control over” such property (and violating the automatic stay) by refusing the debtor’s turnover demands? According to the Supreme Court, the answer is no – instead, the stay under Section 362(a)(3) of the Bankruptcy Code only applies to affirmative acts that disturb the status quo as of the filing date. In other words, the mere retention of property of a debtor after the filing of a bankruptcy case does not violate the automatic stay.
Key Contacts:
On 18 January 2021, the Court of Appeal in Md Isa Bujang v CIMB Bank Berhad dismissed a bankrupt’s appeal against a High Court decision that struck out his claim for, inter alia, damages of RM22,445,601.64 against CIMB Bank Berhad for delay in the auction of his property charged to the Bank. The Bank was represented by our Partner, Claudia Cheah and Senior Associate, Aufa Radzi.
Key points
The High Court has dismissed a strike out application in respect of a claim brought under section 423 of the Insolvency Act 1986 (“IA 1986”) in respect of an alleged transaction defrauding creditors, holding that it is not necessary to prove a freestanding connection between the defendant and England, separate from the litigation itself, in order to obtain relief: Suppipat v Narongdej [2020] EWHC 3191 (Comm).
Alerts and Updates
The Court’s decision provides greater certainty for creditors who passively retain estate property that they obtained pre-petition.
On January 14, 2021, the Supreme Court held in City of Chicago v. Fulton that a creditor does not violate the automatic stay by merely retaining possession of the debtor’s property after a bankruptcy filing. The City of Chicago routinely impounded vehicles owned by drivers with outstanding parking tickets and other fines. The City refused to release the impounded vehicles after the owner of the vehicle filed bankruptcy. The Court of Appeals for the Seventh Circuit held that the City’s retention of the vehicles violated the automatic stay.
India is the seventh largest country in the world spread over a total area of 32,87,263 sq kms, including the territorial seas. Located in South Asia in the tropical belt just north of the equator, it is separated from mainland Asia by the Himalayas, a mountain range that umbrellas the entire northern region stretching to a distance of 2,400 kms to the east. India is home to some of the world‟s highest peaks shielding the country‟s 281 States and 82 Union Territories. Several important rivers originate from this mountain range.
The Bankruptcy Protector
In City of Chicago, Illinois v. Fulton, No. 19-357, 2021 WL 125106, at *1 (U.S. Jan. 14, 2021), the United States Supreme Court considered the issue of whether the mere retention of estate property after the filing of a bankruptcy petition violates section 362(a)(3) of the Bankruptcy Code. Reversing the Seventh Circuit and resolving a split among the circuits, the Supreme Court ruled unanimously on January 14, 2021 “that mere retention of property does not violate the [automatic stay in] § 362(a)(3).”
On Sunday, December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, which provides $900 billion in a second wave of economic stimulus relief for industries and individuals faced with challenges from the COVID-19 coronavirus.