The U.S. Court of Appeals for the Tenth Circuit―in Rajala v. Gardner, 709 F.3d 1031 (10th Cir. 2013)―has joined the Second Circuit and departed from the Fifth Circuit by holding that an allegedly fraudulently transferred asset is not property of the estate until recovered pursuant to section 550 of the Bankruptcy Code and therefore is not covered by the automatic stay. According to the court, its decision “gives Congress’s chosen language its ordinary meaning, and abides by a rule against surplusage.”
“Safe harbors” in the Bankruptcy Code designed to minimize “systemic risk”—disruption in the securities and commodities markets that could otherwise be caused by a counterparty’s bankruptcy filing—have been the focus of a considerable amount of judicial scrutiny in recent years. The latest contribution to this growing body of sometimes controversial jurisprudence was recently handed down by the U.S. Court of Appeals for the Second Circuit.
The Issue
Since the California Mechanic's Lien Law was established more than 100 years ago, it has been black-letter law that a contractor or materials supplier has no right to assert a mechanic's lien against public property. Thus, contractors and material suppliers (and even legal practitioners) have resigned themselves to the notion that the only available remedies on "public projects" are claims against payment bonds and the enforcement of stop notices. Within the last few years, however, the inflexible rule that "you cannot lien public property" has begun to change.
There are important issues and procedures to be considered when a foreign buyer seeks to purchase the assets of a U.S. entity that is distressed or subject to a U.S. insolvency proceeding and which is involved in business activities with a nexus to U.S.
The Ninth Circuit in In re Fitness Holdings Int’l, 2013 U.S. App. LEXIS 8729 (9th Cir. April 30, 2013) recently reversed precedent and established that bankruptcy courts in the Ninth Circuit have the power to determine whether a transaction creates a debt or equity interest for purposes of § 548 of the Bankruptcy Code. In doing so, the Ninth Circuit joins the Third, Fourth, Fifth, Sixth and Tenth Circuits in expressly recognizing bankruptcy courts’ ability to recharacterize claims in bankruptcy proceedings.
On July 24, 2013, Judge Steven W. Rhodes of the Bankruptcy Court for the Eastern District of Michigan approved the City of Detroit’s motion to extend the automatic stay to various non-debtor parties, including certain state officials. The Court’s ruling effectively stays all pending litigation against the City, allows the City to continue to move forward with its chapter 9 case, and paves the way for a dispute over the City’s eligibility to file for chapter 9.
The Chapter 9 Filing and the State Court Litigation
In a recent unanimous decision, the United States Supreme Court made it more difficult to avoid a bankruptcy debtor discharging a debt tied to "defalcation while acting in a fiduciary capacity." [1] In Bullock, the Court stated that a defalcation, or misappropriation of funds, requires a
Over the next few years, a significant number of distressed bank-holding companies will face the end of interestdeferral periods and the prospect of payment defaults on certain debt instruments and trust-preferred securities. The looming obligations to repay deferred interest may escalate the need for financial restructuring at these holding companies and may create attractive opportunities for investors to recapitalize or acquire their subsidiary banks, including in a bankruptcy scenario.