The Bankruptcy Law Firm, Prof. Corp.
Provisions in the CARES Act
On March 28, 2022, certain provisions in the CARES Act expire. Importantly for insolvency practitioners, the amount of eligible debt permissible for a debtor to file under Subchapter V of Chapter 11-the simpler, faster, less expensive, better for debtors kind of chapter 11 bankruptcy case–decreases from $7,500,000, back to the original amount of $2,725,625. It is uncertain whether Congress will extend this provision before it expires. If Congress does not pass legislation extending the $7,500,000 amount, or President Biden does not sign such legislation passed by Congress into law, before March 28, 2022, then the maximum allowable debt amount, for…
Senate Judiciary Subcommittee Hearing, held in February 2022, Takes Aim at “Texas Two-Step” Strategy to Shift Liabilities in Bankruptcy
American Bankruptcy Institute Reports that US Senate Judiciary Subcommittee Hearing, held in February 2022, Takes Aim at “Texas Two-Step” Strategy to Shift Liabilities in Bankruptcy: The Senate Judiciary Subcommittee on Federal Courts, Oversight, Agency Action and Federal Rights held a hearing last week titled, “Abusing Chapter 11: Corporate Efforts to Side-Step Accountability Through Bankruptcy.” The “abuse” being discussed in corporations, setting up a new corporation, putting product liability claims into the new corporation, and then having the new corporation file bankruptcy, to try to use bankruptcy to stay product liability litigation (like the J& J talc cancer litigation) and to…
Patterson v. Mahwah Bergen Retail Group Inc.
Patterson v. Mahwah Bergen Retail Group Inc.,___BR___, (E.D. Va. Jan. 13, 2022; appeal from bankruptcy court to district court number 21-167): It is becoming more common for confirmation of Chapter 11 plans, which grant non-debtors releases, are reversed on appeal. In Patterson, a District Judge, Virginia, on appeal from bankruptcy court to district court, emphatically rejects confirmation of a chapter 11 Plan which grants broad releases to non-debtor Third Parties. In a scorching opinion, US District Judge David Novak of Richmond, Va., set aside confirmation of a chapter 11 plan that contained “extremely broad third-party (non-debtor) releases” and said that…
California’s Debt Collection Licensing Act Creates Uncertainty
California’s new Debt Collection Licensing Act, Cal. Fin. Code § 100000 et seq., took effect on January 1, 2022. However, the legislature’s inartful and inconsistent draftsmanship has resulted in a great deal of uncertainty over who exactly must be licensed. Section 100001(a) provides that “no person shall engage in the business of debt collection in this state without first obtaining a license . . .”. Section 100005 authorizes the Commissioner of Financial Protection & Innovation to take specified enforcement actions if in her opinion ” a person who is required to be licensed under this division is engaged in business…
Fraudulent Transfer and Turnover Claims
In Pereira v. Urthbox, Inc., et al. (In re Try the World, Inc.), ___BR___, 2021 WL 3502607 (Bankr. S.D.N.Y. 8/9/21), the U.S. Bankruptcy Court for the Southern District of New York held that fraudulent transfer and turnover claims are “core” non-arbitrable claims and denied a motion to compel arbitration as to those claims.
In re Purdue Pharma
In In re Purdue Pharma, ___ F.Supp.4th___ (US District Court, Southern District of New York 12/16/21 decision, in appeal LC 21-07532 from Bankruptcy court to District Court, the US District Court Judge overturned the Order confirming debtor Purdue Pharma’s Chapter 11 Plan, because of the releases plan gave nondebtors (Sackler family). the US District Court ruled that the Bankruptcy court had no statutory power to impose non-consensual releases–by creditors which had NOT voted to accept the plan– of creditors’ direct claims against non-debtors for opioid damages. Sacklers paying 4.35 billion dollars into plan did NOT fix that fatal problem. Moral…
US Solicitor General Urges US Supreme Court to Review Constitutionality of the 2018 Increase in U.S. Trustee Fees
On 12/08/21, the U.S. Solicitor General urged the Supreme Court to grant certiorari, resolve a circuit split and decide whether the increase in fees payable to the U.S. Trustee system in 2018 violated the uniformity aspect of the Bankruptcy Clause of the Constitution because it was not immediately applicable in the two states that have bankruptcy administrators rather than U.S. Trustees.
Sienega v. State of California Franchise Tax Board (In re Sienega)
Sienega v. State of California Franchise Tax Board (In re Sienega), ___F.4th___ (9th Circuit Court of Appeals 12/6/21): In Sienega, the Ninth Circuit Court of Appeals NARROWLY defines what is the equivalent of a tax return for dischargeability purposes, pursuant to 11 USC 523(a)(1)(B) of the Bankruptcy Code. Bad news for debtors who do not file tax returns on time, as failing to file a tax return on time prevents a debtor from seeking to discharge that tax debt in bankruptcy. Interpreting the hanging paragraph in Section 523(a), the Ninth Circuit sticks to the Beard test in deciding whether something…
Key Provisions in the Federal CARES Act
A key provisions in the federal CARES Act expires on March 28, 2022. Specifically, the maximum amount of debt a debtor can owe, and still be eligible to file bankruptcy in Subchapter V of Chapter 11, will decrease from $7.5 million, back to the original maximum debt amount of $2,725,625. It is uncertain whether Congress will extend this provision before it expires. The opportunity for a person or entity to file Subchapter V Chapter 11 (the simpler, faster, cheaper, more favorable for debtors kind of Chapter 11 bankruptcy case), where the debtor owes up to 7.5 million dollars of debt,…
Hawker v. Eastport Holdings LLC (In re GYPC Inc.), ___BR___ (Bankr. W.D. Ohio, Nov. 22, 2021, bankruptcy case 19-3054)
Bankruptcy Judge Decision holding that the US Supreme Court Taggart case means there is no strict liability for violating a corporate debtor’s automatic stay. Instead, the debtor must present persuasive authority before a creditor can be held in contempt for violating the automatic stay protecting a corporate debtor. Bankruptcy Court found that the creditor took an “ill-advised” action in violation of the automatic stay in a corporate debtor’s chapter 11 case but refused to hold the creditor in contempt, applying Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), the Supreme Court held that there can be no sanctions for civil…