Is a debtor “engaged in commercial or business activities” for Subchapter V eligibility?
Such question has been addressed on many occasions and by many courts.
The trend seems to be toward a conclusion that the nature and quantity of “commercial or business activities” required for Subchapter V eligibility is this:
- Nature = “easily met”; and
- Quantity = “not much.”
The latest opinion to confirm the trend is In re Robinson, Case No. 22-2414, Southern Mississippi Bankruptcy Court (issued April 17, 2023; Doc. 90).
In a rare move against long-standing precedent, the Bankruptcy Court for the Southern District of New York recently reversed course in its district on calculating allowed damages when debtor-tenants in bankruptcy reject commercial leases. This decision could limit landlords’ damage claims if those rejected leases are long term and contain rent escalation clauses. The case, In re Cortlandt Liquidating LLC, et al. Case No. 20-12097-MEW (Bankr. S.D.N.Y. Feb.
Subchapter V of chapter 11 of the United States Bankruptcy Code, which took effect in 2020, has undergone significant developments since its enactment, as courts continue to interpret its provisions, intended to streamline the chapter 11 process for smaller debtors in bankruptcy. Recent data and judicial decisions have given greater context to not only the popularity of Subchapter V, but also its substantive boundaries, with some of these key developments discussed below.
Subchapter V Filings Increase 81% Year-Over-Year in April
Lehman Bros. Int'l (Europe) (In Admin.) v. AG Fin. Prod., Inc., No. 653284/2011 (Sup. Ct. N.Y. County May 17, 2023) [click for opinion]
Hundreds and hundreds of claims for personal injury and property damage associated with PFAS contamination have been accumulating in the courtroom of a Federal Judge in South Carolina. A little over four years ago the Federal Judicial Panel on Multidistrict Litigation determined that Federal claims that Aqueous Film-Forming Foams (AFFF) containing PFAS used to fight fires had contaminated drinking water had enough in common that they should all be sent to Federal Judge Gergel in South Carolina for disposition.
On April 17, 2023, the Fifth Circuit issued an opinion holding that a senior lender who uses economic leverage and exercises its statutory and contractual rights upon a borrower’s default, including the right to credit bid as part of a bankruptcy sale process—despite adverse impact on a junior lender—remains a “good faith” purchaser entitled to the protections under Section 363(m) of the Bankruptcy Code.
This week, the Court considers a property owner’s claim to an easement over a maintenance road on federal land, and casts doubt on the longstanding “person aggrieved” standing requirement in bankruptcy appeals.
KIMBALL-GRIFFITH, L.P. v. BRENDA BURMAN, ET AL
The Court rejects a property owner’s claim to an easement over a maintenance road on federal land.
In the latest issue of the Restructuring Department Bulletin, we highlight the Supreme Court’s unanimous decision holding that Section 363(m) of the Bankruptcy Code is not jurisdictional. We also discuss two Bankruptcy Court decisions from the Southern District of New York, one which held that the “knowledge exception” to Section 546(e)’s safe harbor defense was sufficiently pled to survive dismissal, and the other which found that service of a discovery subpoena on the foreign debtor’s founders via Twitter was adequate.
In In re CII Parent, Inc.,1 the Bankruptcy Court for the District of Delaware affirmed a secured lender’s prepetition exercise of its proxy rights and its subsequent removal and replacement of the directors/managers of the debtor’s non-bankrupt subsidiaries, effectively cutting off the debtor’s ability to pursue effective relief in the bankruptcy case.
Oral arguments occur on April 24, 2023, before the U.S. Supreme Court in Lac Du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, Case No 22-227. Here is a link to the oral arguments transcript.
What follows is an attempt to, (i) summarize the facts and issue in the case, and (ii) provide a sampling of questions and comments from the justices during oral arguments.
Facts
Here’s what happened: