On June 4, 2014, the New York Court of Appeals will hear arguments arising from the bankruptcies of two law firms—Thelen and Coudert Brothers—as to whether the former partners of the bankrupt law firms must turn over profits earned on billable-hour client matters they brought to their new firms.

Often times indenture trustees seek to sit on creditors committees in furtherance of their fiduciary duties to holders. Obviously, the professional fees and expenses can be paid as a first priority pursuant to a charging lien as provided for under the indenture documents. The payment of such fees and expenses becomes an issue, however, when there are no plan distributions to holders or the plan distributions are illiquid or non-cash.

District Court decides that in a broker-dealer liquidation governed by SIPA, where a trustee seeks to recover funds paid to the defendant under Sections 548(a) and 550(a) of the Bankruptcy Code, which impose liability for fraudulent conveyances where the defendant lacked good faith in receiving the funds: (i) the defendant’s good faith is evaluated under a subjective willful blindness standard, and (ii) to survive a motion to dismiss, the trustee bringing the fraudulent conveyance claims must plead facts sufficient to establish the defendant’s lack of good faith.

The finality of securities transactions is critical not only to investors but also to global securities markets whose stability depends upon a very basic, but crucial, assumption: once a securities transaction is  complete, it cannot be undone. However, in the wake of the Ponzi scheme perpetrated by Bernard Madoff, this fundamental assumption has been challenged and courts have had to determine whether and under what circumstances a transfer in connection with a securities transaction can be recovered by a bankruptcy trustee.

Following recall notices for its ignition switches in February 2014, General Motors, LLC (“New GM”) has been hit with at least 50 class actions and two individual suits in not less than 20 federal and two state courts asserting claims against New GM for defective vehicles and parts sold by Motors Liquidation Company, formerly known as General Motors Corporation (“Old GM”).

In re: Dewey & LeBoeuf LLP, No. 12-12321 (MG) (S.D.N.Y. Bankr., April 10, 2014): As part of the bankruptcy proceedings involving Dewey & LeBoeuf LLP, the U.S. Bankruptcy Court for the Southern District of New York struck Dewey’s defenses to claims brought by its former employees under the federal and New York State WARN Acts. On May 10 and May 14, 2012, Dewey provided letters to its employees warning that their employment could be terminated due to the firm’s financial condition.

The District Court for the Southern District of New York in Lehman Brothers recently threw cold water on a growing body of cases that permit compensation of professional fees incurred by individual members of official committees of unsecured creditors.

In the recent case of Davis v. Elliot Mgmt. Corp. (In re Lehman Bros. Holdings Inc.), 2014 U.S. Dist. LEXIS 48102 (S.D.N.Y. Mar. 31, 2014), the District Court for the Southern District of New York issued a decision barring reorganization plans from paying legal fees of individual members of official creditors’ committees absent a showing of substantial contribution to the estate.

Debt exchanges have long been utilized by distressed companies to address liquidity concerns and to take advantage of beneficial market conditions. A company saddled with burdensome debt obligations, for example, may seek to exchange existing notes for new notes with the same outstanding principal but with borrower-favorable terms, like delayed payment or extended maturation dates (a "Face Value Exchange"). Or the company might seek to exchange existing notes for new notes with a lower face amount, motivated by discounted trading values for the existing notes (a "Fair Value Exchange").

Section 510(b) of the Bankruptcy Code provides a mechanism designed to preserve the creditor/shareholder risk allocation paradigm by categorically subordinating most types of claims asserted against a debtor by equity holders in respect of their equity holdings. However, courts do not always agree on the scope of this provision in undertaking to implement its underlying policy objectives. A New York bankruptcy court recently addressed this issue in In re Lehman Brothers Inc., 2014 BL 21201 (Bankr. S.D.N.Y. Jan. 27, 2014).