No Retroactive Benefits for Veterans Past Deadline, Supreme Court Says​​​

The Supreme Court on Monday unanimously rejected arguments by a disabled veteran that he and other individuals who missed filing deadlines for disability benefits should still be eligible for retroactive payouts if they could show compelling reasons for the late submissions, the Military Times reported. The case — Arellano v. McDonough — had been closely watched by veterans groups because of its potential to award tens of thousands of dollars to some veterans who failed to submit paperwork for military injuries within a year of separation from the service. The case, which has been debated in the federal court system for years, centered on Navy veteran Adolfo Arellano, who was seriously injured in an accident aboard an aircraft carrier in 1980. He was medically retired a year later. Arellano suffered from bipolar schizoaffective disorder as a result, and spent years either living on the street or under the care of family members. When his father died in 2011, he applied for disability benefits through the Department of Veterans Affairs and was granted a monthly support stipend because of his service-connected injuries. However, because Arellano had not applied for benefits within a year of leaving the service ,he was not eligible to receive retroactive benefits dating back to the end of his time in the military. Current law states that veterans must file paperwork in that one-year window to back-date payouts to that military separation date. Those 30 years of back pay would have totaled hundreds of thousands of dollars for him. In October 2022, lawyers for Arellano argued that the one-year deadline was unfair, given that Arellano’s injuries made it impossible for him to apply for benefits on his own. But the Supreme Court on Monday unanimously rejected that assertion. Justice Amy Coney Barrett in the court’s decision wrote that federal rules are clear on the one-year time frame. “The statute sets out detailed instructions that explain when various types of benefits qualify for an effective date earlier than the default,” she wrote. “Congress did not throw the door wide open in these circumstances or any other.” Read more.

Click here to read the Supreme Court's full opinion. 

Commentary: Bankruptcy Relief for Cannabis-Adjacent Debtors? It Gets Hazy*​​​

As cannabis remains a Schedule I drug under the federal Controlled Substances Act (CSA), cannabis companies cannot seek bankruptcy relief under federal law. However, access to bankruptcy can be highly fact-dependent, according to a commentary in Reuters. When the debtor in question is adjacent to cannabis operations, the analysis often turns on the degree to which it is involved in operations that violate federal law and its dependence on such operations to reorganize or satisfy creditor claims. The more heavily the debtor is involved in cannabis operations, or dependent on them to fund a plan of reorganization or administer a liquidation, the less likely it is that the debtor will be allowed bankruptcy protection. Courts will consider, among other factors, whether the debtor’s assets are derived directly or indirectly from cannabis operations, and the amount and relative contribution of such assets to the debtor’s total earnings. Cannabis-adjacent debtors have not fared well in their efforts to obtain bankruptcy relief. However, based on decisions out of the U.S. Court of Appeals for the Ninth Circuit and a recent decision in Colorado, all hope for bankruptcy protection for such debtors may not be lost, according to the commentary. The case law addressing cannabis-adjacent debtors exists along a spectrum of varying levels of debtor involvement with cannabis companies. Specifically, questions of bankruptcy eligibility have arisen where the debtor is directly involved in the sale of cannabis or where it has some connection to a third party’s cannabis operations. That connection may be through the lease of its real property, its provision of products or services, or its direct or indirect ownership interest in such operations, according to the commentary. Read more. 

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

With Eyes on FTX Bankruptcy, U.S. Regulator Seeks More Due Diligence Authority​​​

A top official with the U.S. Commodity Futures Trading Commission (CFTC) is pressing lawmakers to give regulators authority to dig into the books of any firm seeking to acquire significant interest in any registered market-player, Reuters reported. CFTC Commissioner Kristin Johnson said that the agency needs authority to conduct “effective due diligence” on any firm that wants to purchase 10% or more of the equity interest in an exchange or clearinghouse registered with the agency. Without this, unregistered firms can buy their way into U.S.-regulated markets without meaningfully opening their books to regulators, she said. Her statements come as bankrupt crypto exchange FTX prepares to sell assets, including LedgerX, a digital currency futures and options clearinghouse registered with the CFTC. “Without oversight, our licensed markets are for sale,” Johnson said. The Commission needs Congress to give the agency authority to conduct due diligence to protect customers and maintain market stability, she said. Lawmakers have been regrouping to draft legislation aimed at better overseeing the troubled crypto industry. Questions have been mounting over due diligence in crypto following a string of bankruptcies and the announcement in December of U.S. charges against FTX’s founder and former head Sam Bankman-Fried for allegedly committing fraud. He has pleaded not guilty. Read more. 

Fewer Americans Filed for Jobless Claims Last Week​​​

Fewer Americans filed for unemployment benefits last week as the labor market remains tight, even as the Federal Reserve has tried to cool the economy and inflation by raising interest rates, the Associated Press reported. Applications for jobless aid in the U.S. for the week ending Jan. 21 fell by 6,000 last week to 186,000, from 192,000 the previous week, the Labor Department reported Thursday. It’s the first time in nine months that the number has been below 200,000 in back-to-back weeks. The four-week moving average of claims, which flattens out some of the week-to-week volatility, declined by 9,250 to 197,500. It’s the first time that number has been below 200,000 since May of last year. Jobless claims generally serve as a proxy for layoffs, which have been relatively low since the pandemic wiped out millions of jobs in the spring of 2020. Earlier this month, the government reported that U.S. employers added a solid 223,000 jobs in December, evidence that the economy remains healthy even as the Fed is rapidly raising interest rates to try to slow economic growth and the pace of hiring. The unemployment rate fell to 3.5%, matching a 53-year low. Read more. 

Companies Fight Back Against Premium Increases for Crucial Insurance ​​​

Insurance rates are up for cars, homes and commercial property. Some of the biggest increases have been for policies that protect a company’s directors and top executives. Some large businesses have struck back, according to an analysis from the Wall Street Journal. Insurers have raised premiums by 100% or more in recent years as demand for so-called directors and officers policies surged due to a wave of newly public companies and mounting lawsuits with large payouts. Higher prices helped insurers improve their bottom lines, alongside restrictions on coverage amounts and higher deductibles. Insurance that protects directors and officers when they are sued is essential for businesses. Without it, they would struggle to recruit top executives and board members. Some crypto and technology companies have paid as much as $15 million in annual premiums for $40 million of coverage, or weren’t able to get D&O policies at all, said Heidi Lawson, a partner at law firm Cooley LLP. Brokers said coal-related-energy and cannabis companies also are finding commercial coverage hard to get. To get more control over their coverage for directors and officers, some large companies are insuring themselves. Such so-called captive insurers bring an added element of competition to the market, potentially acting as a check on prices. The path to get there required a law change in Delaware, where many large companies are incorporated, to explicitly allow them to use captives for insuring their own directors and officers, with some restrictions. (Subscription required.) Read more. 

Next ABI "Look Ahead for 2023" Discussion on Feb. 8 to Focus on International and Asset Sales!

ABI's "Look Ahead for 2023" half-hour online programs continue on Feb. 8 at 5 p.m. ET with experts providing perspectives on international issues and asset sales. Register for free! 

Miss any of the previous "Look Ahead for 2023" discussions? Watch replays here!

Libor Is Still Due to Die, but Companies May Use Extensions​​​

Companies that have yet to switch over from the London interbank offered rate before a June phaseout deadline may have ways to hang on to the borrowing benchmark — at least temporarily, the Wall Street Journal reported. Libor, which underpins financial contracts such as corporate loans, mortgages and interest-rate derivatives, is set to phase out on June 30 in response to a yearslong manipulation scandal. While some businesses have already transitioned to a version of the Secured Overnight Financing Rate, U.S. regulators’ preferred alternative to Libor, many other firms haven’t, particularly in the leveraged-loan market. Regulators have urged companies and other market participants to link their loans to SOFR well in advance of Libor’s end to ensure a smooth changeover. Companies that lack transitional language in their financial contracts or haven’t manually switched to a replacement rate could face operational risk and higher costs, as their contracts could revert to the prime lending rate, a pricier benchmark, come July. However, some of them might choose to wait even longer, either by rolling over existing Libor-linked loans for as long as 12 months just before the phaseout or potentially by using a so-called synthetic Libor now under consideration by U.K. regulators. Companies could still be dealing with the costs associated with switching to SOFR or giving priority to other financial issues over the transition, advisers said. “For some companies, the approach may be able to give them a little bit more runway to transition if they’re coming up against the deadline and they haven’t been able to figure out the best path,” said David Ridley, a partner in law firm White & Case LLP’s debt finance practice, referring to rollovers. A wave of firms — including many with leveraged loans — are expected to convert their debt agreements to SOFR over the next few months. About 78%, or $1.09 trillion, of U.S. leveraged-loan deals based on dollar volume remained tied to Libor as of Jan. 24, according to Barclays PLC. (Subscription required.) Read more. 

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Don't Miss Three Key abiLIVE Webinars Coming Up in February!

February will feature three excellent abiLIVE webinars with experts addressing important insolvency topics. Programs include:

- February 9: "Lighthouse Resources: A Dive into the 2021 Asset Sale of the Year"

- February 13: "First Day by Reorg: A Review of Chapter 11 Filings in 2022"

- February 15: "All In: The Role of Active Allyship in Diversity, Equity, Inclusion & Belonging"

Registration for all webinar programs is complimentary!

Volunteer Today to Become a Preliminary-Round Judge or Brief-Grader for the Duberstein National Bankruptcy Moot Court Competition!

The Duberstein National Bankruptcy Moot Court Competition, now in its 31st year and widely recognized as one of the nation’s preeminent moot court competitions, will be held in New York on March 4-6, 2023. Fifty-three teams from law schools across the country will compete through written briefing and oral argument. Volunteers are needed for brief-graders and judges for the preliminary rounds of the Competition on Saturday, March 4th, and Sunday, March 5th. To find out more and to volunteer, please click here.

Applications for Judgeship Vacancy in W.D. Texas (Austin) Being Accepted Until Feb. 6

The U.S. Court of Appeals for the Fifth Circuit is seeking applications from all highly qualified candidates for a 14-year appointment as a U.S. Bankruptcy Judge for the Western District of Texas at Austin. The selection process will be confidential and competitive. The current annual salary is $213,992. Only those persons with a law degree whose character, experience, ability and impartiality qualify them to serve in the Judicial Branch should apply. Persons shall be considered without regard to race, color, sex, religion, disability or national origin. The qualification standards and the application form (Parts I and II) are available at www.ca5.uscourts.gov. Six completed applications (Parts I and II) should be mailed to Lorie A. Robinson, Circuit Executive, U.S. Court of Appeals, Fifth Circuit, 600 Camp Street, Room 100, New Orleans, Louisiana 70130. A PDF version of the completed application form (Parts I and II) must be emailed to wtxbankruptcy@ca5.uscourts.gov (link sends e-mail). The deadline for filing a completed application (Parts I and II) is Monday, February 6, 2023. Click here for the full notice.

USTP to Resume Debtor Audits in March 2023

Effective March 13, 2023, the USTP will resume its designation of individual chapter 7 and chapter 13 cases for audit. These audits had been suspended in March 2020 due to public health concerns associated with the COVID-19 pandemic. As authorized in section 603(a) of Public Law 109-8, the USTP established procedures for independent audit firms to audit petitions, schedules and other information in consumer bankruptcy cases. Pursuant to 28 U.S.C. § 586(f), the USTP contracts with independent accounting firms to perform audits in cases designated by the USTP. Click here for more information.

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