Recent Developments

For more than a century, courts in England and Wales have refused to recognize or enforce foreign court judgments or proceedings that discharge or compromise debts governed by English law. In accordance with a rule (the "Gibbs Rule") stated in an 1890 decision by the English Court of Appeal, creditors holding debt governed by English law may still sue to recover the full amount of their debts in England even if such debts have been discharged or modified in connection with a non-U.K.

The United States District Court for the District of Connecticut, applying Connecticut law, has held that coverage under a bankers professional liability policy was precluded by the policy's insolvency exclusion where the underlying claims "arose out of" the bankruptcy of a third-party securities broker or dealer. Associated Community Bancorp, Inc. v. The Travelers Cos., 2010 WL 1416842 (D. Conn. Apr. 8, 2010). The court also held that coverage was barred by the professional services exclusion of the management liability coverage part of the policy.

In Ogle v. Fidelity & Deposit Co. of Maryland, 586 F.3d 143 (2d Cir. 2009), the Second Circuit has now become the second circuit court of appeals to recently conclude that general unsecured creditors may include postpetition attorneys’ fees as part of their claim when attorneys’ fees are permitted by contract or applicable state law.11

On May 18th, the Second Circuit, applying the Supreme Court's holding in Milavetz, Gallop & Milavetz, P.A. v. U.S., 130 S.Ct. 1324 (2010), reversed a trial court order finding that provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act that prohibit debt relief agencies from advising clients to incur more debt were overbroad and unconstitutional when applied to attorneys.

On May 18th, the Second Circuit, addressing the 2005 amendments to the Bankruptcy Code, held that a lender with a purchase-money security interest in a car is entitled to an unsecured claim with regard to a deficiency it incurred upon the surrender and sale of the car. The deficiency claim derives from the contract between the parties and background state law. In the absence of a Bankruptcy Code provision expressly disallowing it, such an unsecured claim may be maintained.

In a recent decision, the United States Bankruptcy Court for the Southern District of New York distinguished excusable neglect in filing a claim before the expiration of a clear bar date. In a written opinion issued on May 20, 2010 in the case of In re Lehman Brothers Holdings, Inc., et. al, Case No. 08-13555 (JMP), Judge Peck denied seven motions for leave to file late claims finding none satisfied the Second Circuit’s strict standard to find excusable neglect.

Introduction

On June 15th, the Second Circuit held that district courts may issue anti-litigation injunctions barring bankruptcy filings as part of their broad equitable powers in the context of an SEC receivership. SEC v. Byers. Reuters reported on the involuntary bankruptcy petitions filed by creditors which prompted the district court's anti-litigation order.

In a recent decision, SEC v Byers,1 the Second Circuit Court of Appeals held that district courts possess the authority and discretion to bar the filing of involuntary bankruptcy petitions without the district court’s permission.