By virtue of loan agreements or a debtor’s acquiescence, a creditor often has varying degrees of influence and control over a debtor and its business. Sometimes, however, a creditor may utilize this control to benefit itself at the expense of other creditors.
In recent years, the practice of bankruptcy claims trading has grown dramatically and now represents a multibillion-dollar-per-year marketplace. However, a recent decision by the U.S. Court of Appeals for the Third Circuit may give pause to prospective claim purchasers.
Seemingly straightforward on its face, certain aspects of the Bankruptcy Code’s “new value” defense[1] have proven frustratingly unclear for practitioners around the country. Illustrative of this frustration is the elusive answer to perhaps the simplest question: When does it apply?
Until recently, most attorneys gave little thought as to whether they should be signing proofs of claim in bankruptcy cases on behalf of their clients. If it was more convenient to have an attorney do so, attorneys followed their clients’ wishes and complied.
While a number of circuits have held that bankruptcy courts have authority under § 105(a) of the Bankruptcy Code to insulate nondebtors via prospective releases of liability in a confirmed plan, the practice is constrained in other circuits.
Last year, a divided panel of the Third Circuit Court of Appeals held that the plain language of § 1129(b)(2)(A) of the Bankruptcy Code allows a debtor to propose the sale of a secured creditor’s collateral free and clear of liens without providing a right to credit-bid, so long as the creditor receives the indubitable equivalent of its claim.
Although several months have now passed since the Supreme Court first decided Stern v.
In certain industries, it is not uncommon for parties to a commercial transaction to alter the normal debtor-creditor relationship by entering into consignment arrangements. Under a typical consignment arrangement, the consignor of the goods (typically a manufacturer or distributor) delivers such goods to the consignee (typically a retailer) to be sold.
Representing creditors’ committees can be lucrative, and law firms often engage in competitive pitches with other firms when seeking to become creditors’ committee counsel. In order to bolster the odds of winning multi-firm “beauty contests,” many firms actively solicit votes from committee members, or if the committee is not yet formed, from the potential committee members.
Creditors share bankruptcy estate assets according to the amount and priority of their claims. The estate is comprised of the debtor’s legal and equitable interests in property as of the filing date.
