In hindsight, it seems inevitable that constitutional and other jurisdictional problems would arise when Congress, in enacting the Bankruptcy Reform Act of 1978, created impressive new powers and responsibilities for the bankruptcy courts (along with a considerable degree of independence) but denied them the status of Article III courts under the Constitution (by denying its judges lifetime tenure, as Article III requires). And it didn’t take long for the problems to arise.

The Third Circuit denied a $275 million break-up fee to a bidder that was unsuccessful in its attempt to buy the crown-jewel assets in the high-profile EFH bankruptcy case. In re Energy Future Holdings Corp., No 18-1109, 2018 U.S. App. LEXIS 25945 (3rd Cir. Sept. 13, 3018). The court held that the bidder’s efforts didn’t result in a benefit to the debtors’ estates.

We generally advise clients to think carefully before commencing an involuntary bankruptcy petition against an alleged debtor.

Bankruptcy plans often include provisions releasing debtors and their officers and directors from certain potential liability. In Zardinovsky v. Arctic Glacier Income Fund, No. 17-2522 (3d Cir. Aug. 20, 2018), the United States Court of Appeals for the Third Circuit held that such a provision bound shareholders who purchased the shares after confirmation, as to post-confirmation claims including securities fraud and breach of fiduciary duty.

In the era that preceded the Bankruptcy Reform Act of 1978 and its enactment of the Bankruptcy Code, bankruptcy estates often lost the value of leases and other contracts that could have been realized for creditors by use or sale as a result of termination provisions (either discretionary or ipso facto), limitations or outright prohibitions on assignment, and counterparty self-help.[1] The Code sou

In Crystallex Int'l Corp. v. Petróleos de Venez., S.A., Nos. 16-4012, 17-1439, 2018 U.S. App. LEXIS 95 (3d Cir. Jan. 3, 2018), the U.S. Court of Appeals held there could be no fraudulent transfer liability under the Delaware Uniform Fraudulent Transfer Act (“DUFTA”) where the transfer was made by a non-debtor entity—even where the debtor exercised complete control over the non-debtor and allegedly orchestrated transfers through the non-debtor to frustrate creditors.

The Bankruptcy Code provides that a Chapter 11 plan of reorganization may be confirmed over the opposition of a class of secured creditors whose secured claims are not being paid in full only if it provides one of the following1--

The Bottom Line

The Third Circuit recently held, in Schepis v. Burtch (In re Pursuit Capital Management, LLC), No. 16-3953, 2017 WL 4783009 (3d Cir. Oct. 24, 2017), that under section 363(m) of the Bankruptcy Code, if a party does not seek a stay pending appeal of a sale order, it is highly likely that any appeal of such sale will be determined statutorily moot. That was certainly the case here.

What Happened?

Background

The Bottom Line:

The Bottom Line