Commercial Bankruptcy Advisor

Commercial Bankruptcy Advisor

Commentary and Analysis
on Chapter 7 & 11 Bankruptcies

BANKRUPTCY AVOIDANCE LITIGATION — DO I REALLY HAVE TO GIVE THAT PAYMENT BACK?

Posted in Avoidance Litigation

Hourglass BKR 17333100_Large(Part one in a two-part series on avoidance litigation in bankruptcy cases)

While initial consumer and commercial bankruptcy filings have, in recent years, ebbed in the wake of the historic highs of the Great Recession, the tail of the bankruptcy boom continues to vex the business community from an unexpected source — avoidance litigation against the debtor’s service and product vendors. The Bankruptcy Code permits a trustee or debtor in possession to avoid and recover certain payments, known as preferences, made by the debtor to its creditors during the 90-day period preceding the filing of its bankruptcy petition. The legislative policy objectives of preference avoidance rest on a dubious proposition: that all creditors should share equally in the debtor’s financial failure and that those creditors who successfully pressured the debtor for payment immediately before the bankruptcy should not gain a greater share of the estate than creditors who did not prey on a distressed debtor. Continue Reading

The Third Circuit Affirms the Denial of Third-Party Releases for Lack of Adequate Disclosure

Posted in Adequate Disclosure, Chapter 11, Third Circuit Court, Uncategorized

Bankruptcy Court.  Dayton, Ohio.  Greek Revival Architecture.The Third Circuit Court of Appeals recently affirmed the decisions of the District and Bankruptcy Court denying, for reasons of inadequate disclosure, the approval of a third-party release provision in the Chapter 11 plan of In re Lower Bucks Hospital, et al., Case No. 10-10239(ELF)(“Lower Bucks”). The offending release purported to prohibit a class of creditors that held corporate bonds in the Debtor, Lower Bucks Hospital, from bringing claims against their Indenture Trustee, The Bank of New York Mellon Trust Company, N.A. The permissibility of third-party releases, where a non-debtor receives a release of the claims of creditors, continues to be a controversial issue in the Third Circuit. While the Third Circuit has yet to issue a definitive opinion on when such third-party releases may be granted, the Court emphatically stated that they may not be granted in the absence of clear and conspicuous disclosure to affected parties. Continue Reading