Bankruptcy Code

Supreme Court Hears Oral Argument in Jevic on Whether Distribution of Settlement Proceeds May Depart From Statutory Priority Scheme

 

The United States Supreme Court heard oral arguments on December 7, 2016 in Czyzewski v. Jevic Holding Corp. The case poses a question that has divided the Second, Third, and Fifth Circuits: Whether a bankruptcy court may authorize the distribution of settlement proceeds in a way that departs from the statutory priority scheme in the Bankruptcy Code, including through a so-called “structured settlement.” READ MORE

Sixth Circuit Finds Bankruptcy Court Cannot Force City to Provide Services in Chapter 9

On November 14, 2016, the United States Court of Appeals for the Sixth Circuit held that courts in chapter 9 cases lack authority to order a municipal debtor to provide services to its constituents. Affirming the bankruptcy court’s dismissal of customers’ claims arising from the termination of their water service by the Detroit Water and Sewerage Department, the Sixth Circuit held that section 904 of the Bankruptcy Code prohibits a chapter 9 court from entering orders that “interfere” with a municipality’s “political [and] governmental powers.” In re City of Detroit, Mich., No. 15-2236, 2016 WL 6677715 (6th Cir. Nov. 14, 2016). READ MORE

The Impact of PROMESA on Creditors

 

On June 30, 2016, the United States Senate passed the “Puerto Rico Oversight, Management and Economic Stability Act” (“PROMESA”) and it was quickly signed into law by President Obama.[1] PROMESA enables the Commonwealth of Puerto Rico and its public corporations and other instrumentalities in financial distress to restructure their debt.[2] The goal of PROMESA is to “bring solvency to Puerto Rico, build a foundation for future growth and ensure the island regains access to capital markets”.[3] PROMESA, though, is not limited to restructuring and enforcement of debt obligations or securities.  If you lent money or extended other forms of credit, or provided goods or services, to Puerto Rico or any of its instrumentalities, PROMESA may affect you. READ MORE

Supreme Court to Resolve Circuit Split Over Structured Dismissals

 

The Supreme Court again will be addressing the powers of bankruptcy courts. At the end of the term, the Court granted certiorari in Czyzewski v. Jevic Holding Corp. to decide whether a bankruptcy court may authorize the distribution of settlement proceeds in a way that violates the statutory priority scheme in the Bankruptcy Code.  No. 15-649, 2016 WL 3496769 (S. Ct. June 28, 2016).  The Supreme Court is expected to address this fundamental bankruptcy issue sometime early next year. READ MORE

Monoline Insurer Challenges Puerto Rico’s Moratorium Law

On June 15, 2016, National Public Finance Guarantee Corporation, an indirect subsidiary of MBIA Inc. (“NPFG”) commenced an action in the United States District Court for the District of Puerto Rico against the Governor of Puerto Rico and certain other officials in an action styled under the caption National Public Finance Guarantee Corporation v. Alejandro Gracia Padilla et. al, No. 16-CV-2101 (FAB), seeking a declaratory judgment that Puerto Rico’s Emergency Moratorium and Financial Rehabilitation Act (the “Moratorium Act”) adopted by Puerto Rico is preempted by the Bankruptcy Code and violates the United States Constitution. READ MORE

US Supreme Court Issues Two Significant Cases on Puerto Rico’s Sovereignty

In the first decision, on June 9, 2016, the United States Supreme Court affirmed the judgment of the Supreme Court of Puerto Rico that Puerto Rico and the United States are not separate sovereigns for purposes of the Double Jeopardy Clause contained in the Fifth Amendment of the U.S. Constitution in the appeal styled under the caption Commonwealth of Puerto Rico v. Sanchez Valle, No. 15-108. Opinion. Sanchez Valle was the first of two appeals heard by the U.S. Supreme Court this term involving Puerto Rico.

On June 13, 2016, the US Supreme Court also confirmed the decisions by the Court of Appeals for the First Circuit and by the United States District Court for the District of Puerto Rico that Puerto Rico’s Debt Enforcement & Recovery Act (DERA) was unconstitutional in the appeals styled under the caption Puerto Rico v. Franklin California Tax-Free Trust, 15-233, and Acosta-Febo v. Franklin California Tax-Free Trust, 15-255 (the “Franklin Fund Appeals”). Opinion. We previously covered the First Circuit’s decision here. READ MORE

Not So Fast – Supreme Court Holds Prepetition Fraudulent Transfer Precludes Post-Petition Discharge in Husky International

One of the goals of the Bankruptcy Code is to provide a debtor with a fresh start. The discharge of prepetition debts at the conclusion of a bankruptcy case is one of the most important ways to attain this fresh start.  On May 16, 2016, the Supreme Court made it harder for debtors to obtain a fresh start by broadening an exception to discharge.

Section 523(a)(2)(A) of the Bankruptcy Code provides that an individual debtor is not discharged from any debt “for money, property [or] services … to the extent obtained by false pretenses, a false representation, or actual fraud[.]” Circuits split as to whether actual fraud under Section 523(a)(2)(A) requires an affirmative misrepresentation; the Fifth Circuit had held that this was a necessary element to prevent discharge, but the Seventh Circuit had held that “actual fraud” encompassed a broader range of behaviors.

The Supreme Court resolved this split, rejecting the Fifth Circuit’s narrow interpretation and finding that the term “actual fraud” does not need to include an affirmative misrepresentation by the debtor. With this broader reading, debtors will be unable to discharge prepetition debts where there is evidence that they inappropriately siphoned of their assets prior to filing for bankruptcy. Husky Int’l Elecs., Inc. v. Ritz, No. 15-145, 2016 WL 2842452 (U.S. May 16, 2016). READ MORE

Seventh Circuit Holds Section 105(a) Permits Stay of Litigation Against Non-Debtor Affiliates

Section 105(a) of the Bankruptcy Code provides that a bankruptcy court “may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a).  In the Caesars bankruptcy, the Seventh Circuit explored the breadth of a court’s rights to take action under this section.  The Seventh Circuit held that section 105(a) permits the Bankruptcy Court to issue an injunction with respect to litigation pending against the debtors’ non-debtor parent.  The Court of Appeals did not ultimately determine whether the stay should in fact be granted because “that’s an issue for the bankruptcy judge to resolve in the first instance;” rather, it held that the Bankruptcy Court and District Court had erred in interpreting section 105(a) too narrowly in denying the stay sought by the debtors. In re Caesars Entm’t Operating Co., Inc., No. 15-3259, 2015 WL 9311432 (7th Cir. Dec. 23, 2015).

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Foreign Debtors’ Access to U.S. Bankruptcy Courts: Expansion of “Property in the United States” Definition in Chapter 15 Cases

When is a foreign entity eligible to file a chapter 15 petition?  This question has been the subject of debate over the last few years, and Judge Martin Glenn’s recent opinion in In re Berau Capital Resources Pte Ltd. will add to this debate.  Although the debtor in the case was foreign and did not have a place of business in the United States, Judge Glenn concluded that the debtor had satisfied the eligibility provisions under section 109(a) of the Bankruptcy Code because the New York choice of law and forum selection clause in the underlying bond indenture rendered the bonds “property in the United States.”  No. 15-11804 (MG), 2015 WL 6507871 (Bankr. S.D.N.Y. Oct. 28, 2015).

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Privacy Policies and the Sale of Corporate Assets: It pays to plan ahead to preserve the value of your data assets

Personal data is a valuable corporate asset.  At times, the personal information collected from customers (such as email address, mailing address, phone number, etc.) can be a company’s most valuable asset.  Unfortunately, when a company attempts to sell this asset, it can find the value of the data significantly diminished due to promises made in a privacy policy the company implemented years before it ever contemplated such a sale.

A company’s privacy policy sets forth the company’s promises to its consumers as to how it will collect, store, maintain, and share the consumers’ personal data.  In an attempt to appeal to customer privacy concerns, it is common for a company to proclaim in such policies:

We share your personal data only in the ways described in this policy,”

or

We care about our customers and we will never sell or share your personal data.”

Most companies include these statements to highlight their promise not to capitalize on a consumer’s data by selling to third party marketers.  However, many companies do not realize that statements such as these could also severely restrict the company’s ability to sell data as a corporate asset in a company sale, merger, bankruptcy, or similar corporate transaction, unless there is also a clear statement within the policy which permits data to be transferred during the course of such events.

There are steps a company can take leading up to the corporate transaction to smooth the transfer of customer data, such as updating its privacy policy, providing additional notice to consumers, requesting opt-out or opt-in consent to the revised policy and/or the data sale.  Companies that fail to take these steps and attempt to transfer data in a manner that conflicts with promises made in its privacy policy may face regulatory scrutiny or litigation, both of which would ultimately diminish the value of their data assets in any eventual sale.

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