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Equity v. Statute: In Bankruptcy, the Code Prevails (The Official Committee of Unsecured Creditors v. The Archdiocese of Saint Paul and Minneapolis et al.)

Garrison Keillor once said, “Sometimes I look reality straight in the eye and deny it.”[1]  Being that the case arose in Minnesota, perhaps Circuit Judge Michael Melloy channeled Keillor, one of that state’s great humorists, when he authored the opinion in The Official Committee of Unsecured Creditors v. The Archdiocese of Saint Paul and Minneapolis et al. (In re: The Archdiocese of Saint Paul and Minneapolis) Case No. 17-1079 2018 WL 1954482 (8th Cir. April 26, 2018) [a link to the opinion is here].[2]  Regardless, the quote must sum up the Appellant’s view of the outcome. The unsecured creditors that make up the Committee, most of whom were victims of clergy sexual abuse, will not obtain access to the value of over 200 non-profit entities affiliated with the Archdiocese of Saint Paul and Minneapolis to pay their claims.

In a concise opinion, the

Eight Lessons for Your Practice from the Law of Canine Replevin (#5 Will Amaze You)

April 24, 2018

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Some years ago, a judge in New York wrote that “the reported cases for replevin of a pet dog are few, in part because of the legal expense involved in maintaining such an action.” Webb v. Papaspiridakos, 889 N.Y.S.2d 884 (Sup. Ct. 2009).  That statement was not entirely accurate then, for courts have dealt with canine replevin from time to time for decades.  But in the years since Webb was decided—all nine of them—the court’s statement has come to seem remarkably naïve.  A wave of replevin cases involving man’s best friend is upon us.  What has changed during this relatively short period?  Many people are saying that millennials own a lot more dogs today than they did in 2009.[1]  Disputing that theory would require a lot of research in a real library.  [Editors’ Note:  The Bankruptcy Cave does not subscribe to the theory that anything unpleasant may be blamed

The Palmaz Plan: Investors Can Have Their Direct D&O Claims But Not The D&O Insurance Proceeds #WinningWhileLosing

April 9, 2018

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In In re Palmaz Scientific Inc., the bankruptcy court for the Western District of Texas determined that a confirmed plan of reorganization would not stop a group of investors from pursuing direct (non-derivative) claims against directors and officers of the debtor companies because plan injunction language only covered claims against the debtors.  2018 WL 1036780, at *5 (Bankr. W.D. Tex. Feb. 21, 2018) (slip op. at 11).  Unfortunately for the investor plaintiffs, this proved to be a success without victory because the court went on to hold that the plan precluded the investors from using the D&O insurance proceeds to satisfy their claims.  Id. at *7 (slip op. at 14).  This case is both a cautionary tale for claimants and a potential boon for post-confirmation trustees.

When (and why) do D&O Insurance Proceeds become the coveted prize?

When D&O claims are asserted against a distressed company and/or its directors

U.K. Government Publishes Guidance on Corporate Governance in Insolvency

 

Editor’s Note: The April 1, 2018 merger of US-based Bryan Cave and UK-based Berwin Leighton Paisner provides us with far greater insight into cross-border insolvencies, an expertise to handle any restructuring, workout, or dissolution matters in the US, UK, Europe, Russia, UAE, Israel, China, and other points in the Far East.  For more information, contact Tessa or Sophie (the authors of this post), or visit here.

Following a number of corporate governance failures in situations of insolvency, the Government has published a consultation paper (located here) aimed at cracking down on directors and employers behaving irresponsibly.  “These reforms will give the regulatory authorities much stronger powers to come down hard on abuse and to make irresponsible directors bear the consequences of their actions.” Greg Clark

Responses are required by 11 June 2018.

Sale of Businesses in Distress

Although directors of an insolvent company must act in the best

Awkward: Old Friend From Church Blocks Discharge of Student Loan Debt

Providing an exception to the axiom that no good deed goes unpunished (a wonderful phrase courtesy of Clare Booth Luce, author, Ambassador, speaker, and a model for our times even thirty years after her death), a Texas bankruptcy court recently declared nondischargeable a debt owed to a guarantor who had been forced to pay the debtor’s defaulted student loan.

The case, De La Rosa v. Kelly  (Adv. Pro. No. 17-03320 (In re Kelly, Case No. 17-32295)) was resolved by the U.S. Bankruptcy Court for the Southern District of Texas by way of summary judgment on March 23, 2018. The debtor, Tabitha Renee Kelly, borrowed $6,292 from the Texas Higher Education Coordinating Board in 2002 to pay educational expenses. The plaintiff in the adversary proceeding, Mary

From Across the Pond: The BHS Saga Continues – Can a Company Voluntary Arrangement (CVA) Ever Permanently Vary the Terms of a Lease?

Editors’ Note:  The upcoming merger between Berwin Leighton Paisner and Bryan Cave will create a 1500 lawyer, fully integrated firm with best-in-class offices in the US, UK, Europe, Russia, Hong Kong, and the UAE.  The combined Firm, to be known as Bryan Cave Leighton Paisner LLP, will have particular strengths in real estate, financial services, litigation, and corporate practices.  Most importantly for followers of The Bankruptcy Cave, this merger will result in a cadre of restructuring professionals able to handle insolvency matters around the globe, with proven expertise in cross-border workouts, restructurings, and any other insolvency featuring international flavors.  We look forward to speaking with you any time on any insolvency matter that includes any cross-border implications.  

Article summary:

In Wright (and another) (as joint liquidators of SHB Realisations Ltd (formerly BHS Ltd) (in liquidation)) v Prudential Assurance Company Ltd, the court held that, when the BHS CVA terminated, the landlord was entitled to claim the full

Everyone Has Rejection Issues

March 21, 2018

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Everyone Has Rejection Issues

March 21, 2018

Authored by: James Maloney

Rejected

In the typical day-to-day experience in bankruptcy proceedings, the debtor’s ability to assume or reject executory contracts and leases under Section 365 of the Bankruptcy Code is seen from the sometimes-unfortunate perspective of the creditor.  To the creditor’s perspective, the prohibitions of the automatic stay, periods of time during which treatment of the contract is uncertain, struggling to acquire adequate protection, a loss of control over who the contract may be assumed and assigned to, and the alternative of being rejected and left with a deemed prepetition claim, all combine to an undesirable scenario.

As misery loves company, two recent cases have illustrated that the requirements and operations of Section 365 can also result in disappointment to a debtor estate seeking contract damages and to a civil action plaintiff seeking compensation for appropriation of its intellectual property.

In Lauter v CITGO Petroleum Corp.[1] a United States District

Clear Error They Say! Supreme Court Opines On Standard Of Review For Determining Non-Statutory Insider Status

Pictured:  Reno Nevada’s The Villages at Lakeridge, a great investment for non-statutory insiders, or for anyone else!!

 

Last April, we updated you that the Supreme Court had granted review of In re The Village at Lakeridge, LLC, 814 F.3d 993 (9th Cir. 2016). Our most recent post is here.

On March 5, 2018, the Supreme Court held a clear-error standard of review should apply to a review of a determination of non-statutory insider status. U.S. Bank Nat. Ass’n v. Vill. at Lakeridge, LLC, No. 15-1509, ___ S. Ct. ___2018 WL 1143822, at *2 (U.S. Mar. 5, 2018).

As a refresher, in Village at Lakeridge, in exchange for $5,000, an insider (Bartlett) transferred a $2.76 million claim against the debtor to an individual (Rabkin) who was not a statutory insider. 

Bankruptcy Court Reluctantly Allows Creditor To Shuck “Lil’ Sweet Pea” Accounts

Any first-year law student could attest that understanding what the law is can be a difficult task, in part because the law is not always applied consistently by courts.  This problem gives rise to a maxim law professors often invoke (sometimes citing Justice Oliver Wendell Holmes, a proponent of this maxim) when questioned about the law’s occasional incoherence: “hard cases make bad law.”[1]  The idea is that courts are sometimes tempted to skirt the proper application of the law when the result seems harsh or unfair.  Typically, this happens when a court is faced with a particularly sympathetic party who happens to be on the wrong side of the dispute.  Although the court’s desire to avoid a harsh outcome is laudable, if the court allows this desire to distort its interpretation of the law it allows other (often less sympathetic) parties to avoid proper application of the law

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