Vendors who sell goods to troubled businesses are often shocked when they are later sued by the debtor, a creditors’ committee or a trustee for the avoidance and recovery of preferential transfers. For the benefit of the uninitiated, the Bankruptcy Code permits the filing of lawsuits against creditors to avoid and recover payments on trade debt made during the 90-day period prior to the bankruptcy filing. The policy rationale behind this provision is to dissuade aggressive collection activities that often force the debtor into bankruptcy and to promote the equality of distribution among similarly-situated creditors. Preference actions are, by far, the most common form of litigation brought within a bankruptcy case and the amounts sought to be avoided and recovered can range anywhere from a few thousand to millions of dollars. Continue Reading THE BIG PROBLEM WITH SMALL PREFERENCES: The Inconsistent Application of the Small-Dollar Venue Exception Creates Opportunities for Knowledgeable Preference Defendants

Despite growing public acceptance of marijuana and the wide-spread passage of state laws legalizing marijuana for medicinal and even recreational purposes, marijuana remains a criminal offense under federal law which presents profound implications for those involved in the marijuana industry who seek the protections of the Bankruptcy Code. Even in a growth industry, there remains a need — by debtors and creditors alike — for an orderly process for liquidation or restructuring of failing businesses. To date, twenty-nine states and the District of Columbia have enacted medical marijuana legislation, with eight of those states also permitting its recreational use. However, federal law is clear in treating marijuana as an illegal substance and no change is in sight on the federal level. In fact, there are current indications that the Department of Justice may be reversing the laissez-faire federal response to state-sanctioned marijuana adopted under the Obama administration. What effect then does engaging in business activities legal under state but not under federal law have on access to the bankruptcy process?

Continue Reading Bankruptcy Courts Just Say No to the Marijuana Industry

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When a court begins its opinion with the statement that “bad facts make bad law,” you know you are in for a good read. Such was the case with The Ninth Circuit Court of Appeals which recently held that two sellers of real estate and design services were liable for the return of payments alleged to be fraudulent transfers made by the debtor’s principal using misappropriated corporate funds. Continue Reading Seller Beware! The Ninth Circuit Holds Innocent Sellers Liable for the Return of Misappropriated Company Funds

Under section 503(b)(9) of the Bankruptcy Code, a creditor may recover as a priority administrative expense the value of goods sold to the debtor in the ordinary course of its business that are “received” by the debtor within the twenty-day period before the filing of the bankruptcy petition. The stakes of such a determination are considerable since, in most Chapter 11 business bankruptcies, priority administrative claimholders are paid in full while general unsecured claims receive only pennies on the dollar, if anything all. Several months ago in this blog, we discussed the opinion of the Third Circuit Court of Appeals in World Imports Ltd. which addressed, under section 503(b)(9), the applicable date of “receipt” by the debtor of goods that are shipped from the seller in China to the buyer in the United States under free on board shipping terms. The Third Circuit reversed the Bankruptcy and District Courts below and held that “receipt” of goods under the statute occurs when the buyer takes physical possession of the goods in the United States port as opposed to the earlier date when the goods are shipped. We observed that this statutory construction would be hailed as a victory by the trade vendor community as more shipments will be deemed to fall within the twenty-day window resulting in greater administrative claim eligibility. Continue Reading The Cookie Crumbles in Baker’s Bid for a § 503(b)(9) Administrative Claim

It is hardly news that the seismic shift in buying habits towards travel and experiences and to internet shopping has dealt a devastating blow to many traditional brick and mortar retailers.  Retailers are going bankrupt at a record pace, and 2017 is on track to post the highest number of retail bankruptcies since the Great Recession. Venerable retailers such as Gymboree, Sports Authority, HH Gregg, Eastern Mountain Sports and RadioShack have all recently sought bankruptcy protection. Compounding this troubling trend is the sobering fact that few of these companies will successfully reorganize. Given the realities of the prevailing retail environment, most of these bankrupt companies will shut their doors, go dark and liquidate their assets. These bankruptcies particularly impact trade vendors who supplied the companies with goods for resale and who typically face the prospects of receiving only pennies on the dollar on their claims in liquidation. However, in what will be welcome news to the beleaguered trade vendor community, the Third Circuit has recently issued a decision refining the definitions of § 503(b)(9) which will enable more vendor claims to be eligible for administrative claim status. Continue Reading Trade Vendor Victory — The Third Circuit Refines Eligibility for Administrative Claims Under § 503(b)(9)

supreme-court-300x199[1]In a decision all but certain to engender future litigation, the Supreme Court recently held in the case of Czyzewski v. Jevic Holding Corp. that structured dismissals providing for distributions that do not follow the normal priority rules and that do not have the consent of affected creditors are impermissible. Reversing the Third Circuit Court of Appeals, which had affirmed the decisions of the courts below, the Supreme Court crafted a narrow ruling that raised but left unanswered questions about the permissible contours of structured dismissals. Continue Reading THE SUPREME COURT DISMISSES STRUCTURED DISMISSALS