In January 2021 the Supreme Court held that a creditor in possession of a debtor's property does not violate the automatic stay, specifically Section 362(a)(3) of the Bankruptcy Code, by retaining the property after the filing of a bankruptcy petition. The court's decision provides important guidance to bankruptcy courts, practitioners and parties on the scope of the automatic stay's requirements.
In the latest chapter of more than a decade of litigation involving efforts to recover fictitious profits paid to certain customers of Bernard Madoff's defunct brokerage firm as part of the largest Ponzi scheme in history, the US Court of Appeals for the Second Circuit has held that the customers did not have a defence to avoidance and recovery because they received the payments "for value".
The practice of conferring 'derivative standing' on official creditors' committees to assert claims on behalf of a bankruptcy estate where the debtor or a bankruptcy trustee is unwilling or unable to do so is a well-established means of generating value for the estate from litigation recoveries. However, the Delaware bankruptcy courts have limited the practice in cases where applicable non-bankruptcy state law provides that creditors have no standing to bring claims on behalf of certain entities.