"Safe harbors" in the Bankruptcy Code designed to insulate nondebtor parties to financial contracts from the consequences that normally ensue when a counterparty files for bankruptcy have been the focus of a considerable amount of scrutiny as part of evolving developments in the Great Recession. One of the most recent developments concerning this issue in the courts was the subject of a ruling handed down by the New York bankruptcy court presiding over the Lehman Brothers chapter 11 cases. In In re Lehman Bros. Holdings, Inc., Judge James M.

The failed bid of liquidators for two hedge funds affiliated with defunct investment firm Bear Stearns & Co., Inc., to obtain recognition of the funds’ Cayman Islands winding-up proceedings under chapter 15 of the Bankruptcy Code was featured prominently in business headlines during the late summer and fall of 2007.

The aggregate value of private-equity acquisitions worldwide in 2006 exceeded $660 billion. If this number seems mind-boggling, consider that this record-breaking volume of transactions appears well on the way to being eclipsed in 2007. Even with corporate financing for leveraged buyouts harder to come by as a consequence of the sub-prime mortgage fallout, there is, by some estimates, $300 billion sitting globally in private-equity funds. Already on tap or completed in 2007: a $32 billion takeover of energy company TXU Corp.

In light of the continued favorable business climate and ample liquidity in the U.S., the falloff in business bankruptcy filings in 2006 should come as no big surprise. Unlike 2005, which added three new stars to the all-time hit parade of chapter 11 “mega” cases, 2006 saw no new additions to the Top 10 list for public-company chapter 11 filings. Overall, the number of business bankruptcy filings dropped 20 percent in fiscal year 2006, the fifth straight year a decline was reported, according to statistics released by the Administrative Office of the U.S. Courts in October of 2006.

In Weisfelner v. Fund 1 (In re Lyondell Chem. Co.), 503 B.R. 348
(Bankr. S.D.N.Y. 2014), the U.S. Bankruptcy Court for the Southern
District of New York held that the “safe harbor” under section
546(e) of the Bankruptcy Code for settlement payments made
in connection with securities contracts does not preclude
claims brought by a chapter 11 plan litigation trustee on behalf
of creditors under state law to avoid as fraudulent transfers
pre-bankruptcy payments to shareholders in a leveraged buyout

InGrayson Consulting, Inc. v. Wachovia Securities, LLC (In re Derivium Capital LLC), 716 F.3d 355 (4th Cir. 2013), the U.S. Court of Appeals for the Fourth Circuit examined whether certain securities transferred and payments made during the course of a Ponzi scheme could be avoided as fraudulent transfers under sections 544 and 548 of the Bankruptcy Code. The court upheld a judgment denying avoidance of pre-bankruptcy transfers of securities because the debtor did not have an “interest” in the securities at the time of the transfers.

In a much-awaited judgment, the UK Supreme Court has decided that the liability of a company in administration or liquidation to contribute to an under-funded pension fund following a Financial Support Direction or a Contribution Notice is a provable debt ranking equally with other unsecured creditors. Crucially, it is not an expense of the administration or liquidation which would cause it to rank ahead of all creditors (except fixed charge holders) and even the administrator's or liquidator's own remuneration.

In the July/August 2012 edition of the Business Restructuring Review, we reported on a Delaware bankruptcy-court ruling that reignited the debate 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. In In re KB Toys, Inc., 470 B.R. 331 (Bankr. D. Del. 2012), the court rejected as unworkable the distinction between a sale and an assignment of a claim for purposes of disallowance that was drawn by the district court in Enron Corp. v. Springfield Associates, L.L.C.

On April 23, 2012, the U.S. Supreme Court approved amendments to the Federal Rules of Bankruptcy Procedure. The amended rules automatically become effective on December 1, 2012, unless Congress acts before then to reject, modify, or delay the rule changes. Several of the amendments involve technical and conforming changes to eliminate inconsistencies within the existing Bankruptcy Rules, as well as changes designed to make the bankruptcy rules consistent with the Federal Rules of Civil Procedure and the Federal Rules of Appellate Procedure.

InIn re Washington Mutual, Inc., 2011 WL 4090757 (Bankr. D. Del. Sept. 13, 2011), Judge Mary F. Walrath of the U.S. Bankruptcy Court for the District of Delaware denied confirmation of the debtors’ proposed chapter 11 plan and instead referred the litigants to mediation in order to move the case toward a confirmable resolution.