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When a business is in financial distress, the breaking point sometimes comes with little or no warning. An event such as a termination of funding, the falling through of a crucial transaction, or the loss of a key customer can be difficult to predict, and may result in a distressed business being forced to cease operations abruptly, without providing its workers with the advance notice required under the Federal WARN Act.[1]
In In re Emoral, Inc.,[1] the Third Circuit held that personal-injury causes of action arising from the alleged wrongful conduct of the debtor corporation, asserted against a third-party non-debtor corporation on a theory of successor liability under state law, were generalized claims constituting property of the bankruptcy estate. The Third Circuit’s decision draws attention to the distinction between specialized and generalized claims and who has control over such claims: the individual creditors or the bankruptcy trustee.
Consider the following situation: A debtor owes you $1 million, and you find out that the debtor has transferred its assets to a third party without receiving reasonably equivalent value and is now unable to pay its debt to you. If you are in one of the many states that has adopted the Uniform Fraudulent Transfer Act for avoiding such transfers, the next step may be to file a fraudulent transfer action.[1] But what happens if the debtor files for bankruptcy?
The Unsecured Trade Creditors Committee's most recent committee call was titled "Tricks of the Trade in Dealing with Executory Contracts," and was moderated by committee Co-chair, Lisa Gretchko. Speakers for this call included David Neumann of Two By Foresight LLC in Cleveland, Ohio, and Shirley Cho of Pachulski Stang Ziehl & Jones LLP in Los Angeles. Please review the attached excerpt from the ABI Commission to Study the Reform of Chapter 11's final report.
Consider the following scenario: A financially struggling consumer borrows cash from a friend and deposits the cash into his bank account. He uses this cash to make a purchase at a retail store and later pays his friend back. Subsequently, he files for bankruptcy. In this scenario, few would argue that the payment to the retail store and paying back the friend were not separate, avoidable preferences (assuming that no § 547(c) defenses applied).
The ABI’s Unsecured Trade Creditors’ Committee and the ABI’s Secured Credit Committee hosted a joint call featuring Mark Gittelman, Chief Practice Counsel - Asset Recovery at PNC. Mark led a discussion regarding the Bank Secrecy Act and Anti-Money Laundering procedures being utilized by financial institutions.
The Unsecured Trade Creditors Committee hosted their most recent bi-monthly committee call on Thursday, October 23rd. Eric J. Haber of Cooley LLP in New York, led a discussion regarding developing strategies in preference cases. Brent Weisenberg of Ballard Spahr in New York moderated the discussion. Please review the attached FAQ and materials that Eric provided attendees.
A Federal Rule of Bankruptcy Procedure 2004 examination is commonly referred to as a “fishing expedition”[1] into a debtor’s financial affairs. Debtors, trustees and creditors routinely use Rule 2004 exams to investigate an examinee’s financial affairs with very little interference by bankruptcy courts or discovery rule limitations. However, a party with pending litigation against an examinee may find that a Rule 2004 exam is not the road to take.
Editor's Note - The Unsecured Trade Creditor's Committee recently hosted a committee call dealing with these same cases. To listen to the recording of this call, click here.
The Bankruptcy Code defines “claim” as a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured….”[1] Congress intended the “broadest possible” definition, and that the Code “contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case … [and] permits the broadest possible relief in the bankruptcy court.”
