The Bankruptcy Protector
Imagine this: you sell a product to a company on credit at 8% interest until you are paid, and the company files for bankruptcy before repayment. Or maybe you are a hard money lender that made an unsecured loan at 18% to a company to bridge through hard times, and the company files for bankruptcy. Or maybe you are a secured creditor with a 5% loan on real estate, and after the borrower files for bankruptcy, you discover there is a defect in your mortgage and your lien can be stripped.
A Texas bankruptcy court’s decision earlier this year to dismiss the National Rifle Association’s (“NRA”) chapter 11 bankruptcy case as a bad faith filing illustrates the perils of a poorly planned chapter 11 filing, and highlights the need, even in crisis situations, to establish solid objectives and develop a sound strategy prior to seeking relief under the Bankruptcy Code. In re Nat’l Rifle Ass’n of Am., 628 B.R. 262 (Bankr. N.D. Tex. 2021).
The Bankruptcy Protector
Section 546(e) of the Bankruptcy Code is a safe harbor provision that establishes that a trustee or debtor-in-possession may not avoid a transfer “by or to... a financial institution.. in connection with a securities contract” other than under an intentional fraudulent conveyance theory. On December 19, 2019, the Second Circuit in Note Holders v.
At the very end of a recent opinion, the First Circuit seemingly provided guidance on how bondholders can attack the constitutionality of Puerto Rico’s debt restricting act, PROMESA (The Puerto Rico Oversight, Management, and Economic Stability Act). However, the apparent guidance offered by the First Circuit may only be fool’s gold.
In bankruptcy, one of the “powers” granted to a trustee is the ability to undo previously completed transactions in order to facilitate payments to creditors. However, the Bankruptcy Code prevents a trustee from unwinding certain types of transactions. The safe harbor provision of 11 U.S.C. § 546(e) protects financial institutions performing securities transactions from having to disgorge payments initially made by a now bankrupt company.
In In re Short Bark Industries Inc., 17-11502 (Bankr. D. Del. Sept. 11, 2017), Judge Kevin Gross of the United States Bankruptcy Court for the District of Delaware read the Supreme Court’s holding in Jevic narrowly in connection with a settlement of a dispute on DIP financing.
The Bankruptcy Protector
Section 105 of the U.S. Bankruptcy Code, titled “Power of Court,” is often cited and used as a “catch-all” provision when requesting certain relief or when a bankruptcy court enters an order granting (or denying) certain relief not prescribed by a particular provision of the Bankruptcy Code. That section provides that a “court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title . . .
The Bankruptcy Protector
Almost two years ago, the Small Business Reorganization Act of 2019 (SBRA) was enacted. While the provisions regarding the new Subchapter V reorganization received the most press (streamlined chapter 11 for businesses with debts of no more than $7,500,000), the SBRA also included other important changes to the Bankruptcy Code. Among these additional changes was an increase in the venue threshold under 28 U.S.C. § 1409(b) to $25,000.00 as follows: