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".
In 2019 the large business bankruptcy landscape was generally shaped by economic, market and leverage factors, with notable exceptions for disastrous wildfires, liabilities arising from the opioid crisis, price-fixing fallout and corporate restructuring shenanigans. The year 2020 was a different story altogether. The COVID-19 pandemic may not have been responsible for every reversal of corporate fortune, but it weighed heavily on the scale.
A basic tenet of bankruptcy law, premised on the legal separateness of a debtor prior to filing for bankruptcy and the estate created on a bankruptcy filing, is that prepetition debts are generally treated differently to debts incurred by the estate, which are generally treated as priority administrative expenses. However, as demonstrated by a recent US District Court for the District of Delaware decision, this seemingly straightforward principle is sometimes difficult to apply.
Courts sometimes disagree over whether provisions in a borrower's organisational documents designed to prevent it from filing for bankruptcy are enforceable as a matter of federal public policy or applicable state law. A handful of court rulings have addressed this issue in recent years, with mixed results. Most recently, the Delaware bankruptcy court overseeing the Chapter 11 cases of Pace Industries, LLC and affiliates denied on public policy grounds a motion to dismiss the cases filed by a preferred stockholder.