Maryland Legal Alert for Financial Services

The Bankruptcy Court for the District of Maryland recently proposed a new local rule in response to the U.S. Supreme Court decision that mere retention of bankruptcy estate property by a creditor post-petition does not amount to an exercise of control over estate property in violation of the automatic stay.

The Bankruptcy Code confers upon debtors or trustees, as the case may be, the power to avoid certain preferential or fraudulent transfers made to creditors within prescribed guidelines and limitations. The U.S. Bankruptcy Court for the District of New Mexico recently addressed the contours of these powers through a recent decision inU.S. Glove v. Jacobs, Adv. No. 21-1009, (Bankr. D.N.M.

In a somewhat unexpected development given his recent appointment to a second 14-year term a mere 5 years ago, Bankruptcy Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York announced that he intends to retire as of June 30, 2022.

Current U.S. bankruptcy law gives companies wide discretion to file a bankruptcy in the venue of their choice. A company can file for bankruptcy in any federal district where it has its “domicile, residence, principal place of business in the United States, or principal assets in the United States” or where an affiliate of the company has a pending bankruptcy case. Often a company whose business primarily is in California will file bankruptcy in another state where it might have a small corporate affiliate.

As Mitt Romney famously noted, "Corporations are people, my friend." But not when it comes to Fifth Amendment privileges, as a US Bankruptcy Court in New York recently made clear. Clients of the now defunct law firm Kossoff PLLC filed involuntary bankruptcy petitions against the firm and the firm's appointed representative, its founder and former managing member, resisted producing records to the trustee claiming the production of the documents could incriminate the representative in a pending criminal investigation.

In the case of In re Walker, 473 Md. 68 (2021), the Court of Appeals responded to a certified question of law by the U.S. Bankruptcy Court for the District of Maryland (Bankruptcy Court) by stating that a lien under the Maryland Contract Lien Act (MCLA) cannot secure damages, costs of collection, late charges, and attorney's fees that accrue subsequent to the recordation of the lien.

Overview

On May 3, 2021, Judge Marvin Isgur of the United States Bankruptcy Court for the Southern District of Texas held that indenture trustees must satisfy the “substantial contribution” standard to obtain administrative expense status for their fees and expenses incurred in a chapter 11 case. In his ruling, Judge Isgur expressly rejected the indenture trustee’s argument that it could obtain administrative expense status upon a showing that its fees and expenses were an actual, necessary cost of preserving the debtor’s estate.

The Bottom Line:

The Bottom Line: