A basic tenet of bankruptcy law, premised on the legal separateness of a debtor prior to filing for bankruptcy and the estate created upon a bankruptcy filing, is that prepetition debts are generally treated differently than debts incurred by the estate, which are generally treated as priority administrative expenses. However, this seemingly straightforward principle is sometimes difficult to apply in cases where a debt technically "arose" or "was incurred" prepetition, but does not became payable until sometime during the bankruptcy case. A ruling recently handed down by the U.S.
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Yes, says the Third Circuit. The Third Circuit recently held that the Bankruptcy Court has the authority to confirm a chapter 11 plan which contains nonconsensual, third-party releases when such releases are integral to the successful reorganization. The court’s decision in In re Millennium holds that, when the third-party releases are integral to the restructuring of the debtor-creditor relationship, the Bankruptcy Court has the constitutional authority to approve nonconsensual, third-party releases.
Background
A recent decision by a federal appeals court appears to open the doors of United States Bankruptcy Courts nationwide… or does it? The Ninth Circuit’s decision from Garvin v. Cook Investments provides a helpful roadmap for understanding the challenges and opportunities for marijuana-related businesses considering their access to bankruptcy courts.
Marijuana Businesses Generally Violate Federal Law
In an earlier update, we told you about an appeal pending in the U.S. Court of Appeals for the Ninth Circuit that would decide whether a landlord receiving rent from someone involved in the state-legal cannabis industry could ever confirm a plan of reorganization under chapter 11 of the Bankruptcy Code.
On December 22, 2018, the federal funding for certain agencies lapsed, and the United States government entered into a partial shutdown. The U.S. Department of Justice (DOJ), including the United States Trustee Program (USTP), was one of the agencies that shut down. United States Trustees (“UST”) representing the USTP appear and litigate in a multitude of bankruptcy proceedings. USTs also actively participate in out-of-court settlement discussions, plan negotiations, and the like.
The value of the legitimate cannabis industry in the United States (measured by annual sales) is rapidly approaching $10 billion and expected to exceed $20 billion within the next five years. As the market grows, many companies that do not grow or sell cannabis are nonetheless doing business with those that do. Media companies are running advertisements for dispensaries, agricultural-equipment manufacturers are selling machinery to cannabis growers, and lawyers, accountants, and other professionals are providing services to clients directly involved in the industry.
District Court Confirms Bankruptcy Court’s Constitutional Authority to Approve Millennium Plan Releases, Dismisses as Equitably Moot Opt-Out Lenders' Remaining Issues on Appeal
New Decision Affects D&O Liability
A recent federal bankruptcy court decision addresses important principles of fiduciary conduct (and the benefits of a state exculpatory statute) in the context of a financially distressed not-for-profit hospital.