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    Caveat emptor: bankruptcy claims buyers beware as Third Circuit affirms KB Toys
    2013-12-02

    Due to inconsistent decisions in the Second Circuit and Third Circuit, there has been some uncertainty as to whether a purchaser of a bankruptcy claim is subject to defenses that a debtor would have against the original creditor. Recently, this issue was settled with respect to cases filed in the Third Circuit.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Hunton Andrews Kurth LLP, Bankruptcy, Debtor, Uniform Commercial Code (USA), Third Circuit
    Authors:
    Kenneth L. Rothenberg , David J. Hoyt , Paul N. Silverstein
    Location:
    USA
    Firm:
    Hunton Andrews Kurth LLP
    Third Circuit rules that avoidance risk travels with claims
    2013-12-03

    Recently, in connection with the bankruptcy case of KB Toys, the Third Circuit Court of Appeals disallowed a claim held by a claim purchaser, citing that the original holder of the claim had received a preference payment prior to the bankruptcy case.1 The ruling affirmed an earlier decision of the Delaware Bankruptcy Court, which we discussed in a previous memorandum2, in which the Bankruptcy Court held that (i) a claim in the hands of a transferee has the same rights and disabilities as the claim had in the hands of the original claimant; and (ii) disabilities attach t

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Richards Kibbe & Orbe LLP, United States bankruptcy court, Third Circuit
    Location:
    USA
    Firm:
    Richards Kibbe & Orbe LLP
    Buyer beware: Third Circuit confirms claims are subject to disallowance despite sale to third party
    2013-12-05

    The Third Circuit in In re KB Toys, Inc.1 recently affirmed a decision of the Delaware District Court, holding that trade claims are subject to disallowance under section 502(d) of the Bankruptcy Code despite their subsequent sale to a third party. This case is of particular interest to investors in distressed debt.

    Filed under:
    USA, Delaware, Insolvency & Restructuring, Litigation, Morrison & Foerster LLP, Liquidation, ING Group, Third Circuit
    Authors:
    Brett H. Miller
    Location:
    USA
    Firm:
    Morrison & Foerster LLP
    Claims trader alert
    2013-11-21

    A ruling handed down by the Third Circuit Court of Appeals on November 15, 2013, adds yet another chapter to the ongoing controversy concerning whether sold or assigned claims can be subject to disallowance under section 502(d) of the Bankruptcy Code on the basis of the seller’s receipt of a voidable transfer. The decision—In re KB Toys Inc., 2013 WL 6038248 (3d Cir. Nov. 15, 2013)—is an unwelcome missive for claims traders. For the first time since the enactment of the Bankruptcy Code in 1978, a circuit court of appeals has concluded that:

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Jones Day, Second Circuit, Third Circuit
    Location:
    USA
    Firm:
    Jones Day
    KB toys: don’t play with clouded claims
    2013-11-25

    In a recent decision by the influential Third Circuit Court of Appeals, In re KB Toys Inc., 2013 U.S. App. LEXIS 23083 at *17 (3d Cir. Nov. 15, 2013), the Court decided that “the cloud on the claim” stemming from a preferential payment made to the original claimant continues with the claim, which then could be disallowed.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Mintz, Third Circuit
    Authors:
    Kelly L. Frey , Elizabeth B. Burnett
    Location:
    USA
    Firm:
    Mintz
    Claim trading update: Third Circuit holds that section 502(d) disallowance runs with the claim
    2013-11-26

    In the first appellate court decision on the issue, the Third Circuit Court of Appeals recently held that trade claims subject to disallowance under section 502(d) of the Bankruptcy Code are disallowable “no matter who holds them.”1 In In re KB Toys Inc., the Third Circuit affirmed Bankruptcy and District Court decisions holding that trade claims subject to disallowance in the hands of an original claimant remain disallowable in the hands of a subsequent transferee.

    Filed under:
    USA, Company & Commercial, Insolvency & Restructuring, Litigation, Debevoise & Plimpton, Due diligence, Third Circuit
    Authors:
    Jasmine Ball , Richard F. Hahn , M. Natasha Labovitz , George E.B. Maguire , Shannon Rose Selden , My Chi To
    Location:
    USA
    Firm:
    Debevoise & Plimpton
    In re KB Toys Inc.: disallowance cannot be washed away
    2013-11-27

    In In re KB Toys Inc.,1 the US Court of Appeals for the Third Circuit affirmed the holdings of the lower courts that claims subject to disallowance under Section 502(d) of the Bankruptcy Code are “similarly disallowable in the hands of the subsequent transferee.” According to the Third Circuit, when a creditor owes property to the estate, until that property is returned to the estate, that creditor’s claim, regardless of who holds it, is impaired, and the subsequent sale of that c

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Mayer Brown, Third Circuit
    Authors:
    Brian Trust , Monique J. Mulcare , Frederick D. Hyman
    Location:
    USA
    Firm:
    Mayer Brown
    Third Circuit finds clouds over debt trades in bankruptcy
    2013-11-18

    In a closely-watched case, the United States Court of Appeals for the Third Circuit recently affirmed the decision of the Delaware District Court, holding that bankruptcy claims are subject to disallowance under section 502(d) of the Bankruptcy Code despite their subsequent sale to a third-party. In In re KB Toys, Inc., No. 13-1197 (3d Cir. Nov.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Bracewell LLP, Third Circuit
    Location:
    USA
    Firm:
    Bracewell LLP
    Weathering the storm: buyer beware: Third Circuit’s decision in In Re KB Toys highlights potential pitfalls for purchasers of claims from claimants with preference or other avoidance exposure
    2013-11-20

    In In re KB Toys,1 a recent decision by the Third Circuit Court of Appeals, the Court held that a claim that is disallowable under § 502(d)2 if held by the original claimant is also disallowable in the hands of a purchaser or subsequent transferee. In other words, if a creditor sells or assigns its claim to a claims trader and the creditor later becomes liable on a preference or fraudulent transfer,3 the claim may be disallowed in the hands of the claims trader if the creditor fails to pay the amount it owes to the estate.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Haynes and Boone LLP, Third Circuit
    Authors:
    Stephen Pezanosky , Jarom Yates , Christopher L. Castillo
    Location:
    USA
    Firm:
    Haynes and Boone LLP
    Third Circuit affirms decisions broadly applying Section 524(g) injunction to claims
    2013-11-06

    The U.S. Court of Appeals for the Third Circuit recently confirmed that a channeling injunction pursuant to 11 U.S.C.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Hunton Andrews Kurth LLP, Injunction, US Code, Third Circuit
    Location:
    USA
    Firm:
    Hunton Andrews Kurth LLP

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