Federal Deposit Insurance Corporation (“FDIC”) Chair Martin Gruenberg gave remarks to the Cities for Financial Empowerment Fund 2023 Bank On National Conference yesterday in which he said that the FDIC “shares the Bank On movement’s commitment to advancing Americans’ economic inclusion in the banking system.”
Answers to these two questions can get tricky:
- When should a previously successful business engage distress-debt counsel?
- What is the role of the business’s general counsel once that happens?
Second Question: Role
Here’s the answer to the second question first:
On May 8, cryptocurrency platform Bittrex filed for chapter 11 in Delaware. Bittrex’s first day filings emphasize that, unlike many other crypto filings over the past year, this case is not a “free fall” bankruptcy. In fact, a plan has already been filed, and the first day declaration said the debtors “took extensive action pre-petition to ensure full customer recovery, and plan to swiftly bring these chapter 11 cases to a responsible conclusion.”
The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of a consumer’s lawsuit against a debt collector, holding that the consumer lacked Article III standing to sue because his allegations of ʺconfusion” and “alarm” were not sufficiently concrete to result in an injury in fact.
The hits keep coming for student loans in bankruptcy.
This time the hit is this:
- student loans for attending medical school do not qualify as “commercial or business” loans for Subchapter V eligibility.
The central finding, for a medical student who worked as an employee for ten years before becoming an entrepreneur, is this:
- “the gap between incurring the debt and actually engaging in . . . commercial or business activity as an owner is simply too great.”
Background
On May 2, 2023, the US District Court for the Southern District of Indiana reversed a bankruptcy court’s ruling that read limitations into the application of Bankruptcy Code Section 546(e)’s safe harbor to a stock purchase transaction. Specifically, the District Court relied on the plain language of Section 546 in determining that a chapter 7 trustee could not avoid the transfer of $24.9 million by the debtor to repay a bridge loan in connection with a financed acquisition of the debtor’s stock two years prior to its bankruptcy filing.
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]