When a creditor seeks equitable relief in a bankruptcy court, must the court always follow common law principles of equity? Not according to several courts, including the Second Circuit. Concluding that the granting of equitable remedies may circumvent the Bankruptcy Code's equitable distribution system, courts have limited the application of equitable remedies in the bankruptcy context.

Two recent Federal appeals court decisions — one issued by the Fifth, the other by the Second Circuit — illustrate the dangers of careless drafting of bankruptcy and reorganization plans. In the Fifth Circuit decision, a drafting error prevented a company reorganized under Chapter 11 from suing the administrators of its property during its bankruptcy for fraud, breach of fiduciary duty and negligence, thereby potentially depriving its creditors of bankruptcy assets.

On July 22, 2008, the US Court of Appeals for the Second Circuit affirmed denial of the motion of Parmalat S.p.A. ("New Parmalat") to extend an injunction provided to its predecessor, Parmalat Finanziaria, S.p.A., under Bankruptcy Code section 304, against securities fraud actions.1 Although the appeal addressed the issue of injunction in the context of superseded Bankruptcy Code section 304, this decision and the underlying lower court opinion signify other issues of broader import, including the need for careful plan drafting and the complexities inherent in cross-border cases.

In Official Committee of Unsecured Creditors v. Halifax Fund, L.P. (In re Applied Theory Corp.),1 the Second Circuit, in a per curiam opinion, held that an official committee of unsecured creditors (the "Committee"), under the circumstances, did not have the right to commence an adversary proceeding seeking the equitable subordination of claims held by insiders of a Chapter 11 debtor. The Applied Theory court rebuffed the Committee's characterization of its claim as a direct claim that the Committee could prosecute without the bankruptcy court's permission.

Equitable mootness is a doctrine grounded in equity pursuant to which an appeals court will dismiss an appeal of a bankruptcy order — even if effective relief could conceivably have been granted — because the implementation of such relief (e.g., the reversal of a bankruptcy court order) would be inequitable to third parties. This doctrine may be applied to achieve the necessary finality of bankruptcy orders and decisions that is required to effectuate the successful, expedient reorganization of debtors in bankruptcy.2

In Motorola, Inc. v. Official Committee of Unsecured Creditors (In re Iridium Operating LLC, 478 F.3d 452 (2d Cir. 2007), the Second Circuit held that the most important factor for a bankruptcy court to consider in approving a pre-plan settlement pursuant to Bankruptcy Rule 9019 is whether the settlement’s distribution scheme complies with the Bankruptcy Code’s priority scheme. Prior to this ruling, courts in the Second Circuit generally considered the following factors when approving settlement agreements:

In January 2020 we reported that, after the reconsideration suggested by two Supreme Court justices and revisions to account for the Supreme Court’s Merit Management decision,[1] the Court of Appeals for the Second Circuit stood by its origina

A bankruptcy trustee exercising her or his avoidance powers under Chapter 5 of the Bankruptcy Code may seek to recover the avoidably transferred property (or its value) from “the initial transferee,” “the entity for whose benefit such transfer was made” and “any immediate or mediate transferee of such initial transferee.”[1] Despite the authorization to seek recovery from multiple sources, “[t]he trustee is entitled to only a sin

The Second Circuit recently issued an important decision on a “related to” jurisdiction case arising out of the Bernie Madoff Ponzi scheme. SPV Osus, Ltd. v. UBS AG, 2018 U.S. App. LEXIS 3088 (2d Cir. Feb. 9, 2018).

A recent decision of the United States Bankruptcy Court for the Southern District of New York provides important guidance on the limits of nonconsensual third-party releases in the Second Circuit.[1] SunEdison, Inc. sought confirmation of a plan for itself and its affiliated debtors.