Recent Developments in Bankruptcy Law

Effective November 6, 2017, the U.S. Bankruptcy Court for the District of Delaware will start making audio recordings of certain proceedings available to the public through PACER, as well as the standard ECF notifications received by counsel.  The recordings themselves will be an attachment to a PDF document, and will be in MP3 format.

Initially it will only be for proceedings before Judge Kevin J. Carey, although it may expand to other Judges in the future.  Click here for the notification posted by the Clerk’s Office, and click here for instructions on accessing the audio files through ECF notification or PACER.

Included with the notification are details regarding confidential, sealed or personal information that may come up during a hearing and how that is being handled.  Short answer, counsel will have to move to seal the entire recording, as partial redactions are not possible.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Earlier this month, the U.S. Bankruptcy Court for the District of Delaware (the “Delaware Bankruptcy Court”) released an update to the Local Rules for the United States Bankruptcy Court District of Delaware (Effective February 1, 2017) (the “Local Rules”).  According to Local Rule 1001-1(e), the 2017 version of the Local Rules governs all cases or proceedings filed after February 1, 2017, and also applies to proceedings pending on the effective date, except to the extent that the Court finds that it would not be feasible or would work an injustice.

A summary of the amendments is below:

New LR 3016-1 – Requires any amended Plan or Disclosure Statement to include a redline showing changes from the previous version.

New LR 9029-2 –Cross-Border Insolvency Matters – refers to new Part X of the local rules.

New LR 9033-1 – Transmittal to District Court of Proposed Findings of Fact and Conclusions of Law.

New Part X – Guidelines for Communication and Cooperation Between Courts in Cross-Border Insolvency Matters.

Rule 2002-1(f)(viii) – The amendment requires the claims agent to make the complete Proof of Claim and attachments “viewable and accessible by the public”.

Rule 2016-2(e)(iii) – adds language allowing $0.80 per page for color copy charges (B&W remains $0.10 per page).  Outgoing fax charges reduced from $1.00 per page to $0.25 per page.

Rule 3023-1(b)(i)(B) – new sub-section on Nonstandard Plan Provisions added.

Rule 9013-1 – Motions and Applications – numerous language changes throughout the Rule.

Rule 9018-1:

(a) – New subsection stating that exhibits entered into evidence must be retained by counsel until the later of the closing of the main case or entry of a final non-appealable order.

(b) – Parties must make exhibits admitted into evidence available to any other party at its expense (subject to confidentiality).

(c) – Motions to seal do not require a motion to shorten notice, objections may be presented at the hearing.

A link to the 2017 Local Rules can be found here.  In addition, a redline reflecting the changes between the 2016 and 2017 Local rules can be found here.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Effective January 2, 2017, all telephonic court appearances before the Honorable Kevin Gross of the United States Bankruptcy Court for the District of Delaware will be through CourtSolutions LLC.  The alert was issued by the Court today on November 30th.  Click here for a copy of the notice.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

According to the United States Bankruptcy Court for the District of Delaware’s website, the meeting room for the United States Trustees has been changed from the second floor room 2112 to the third floor room of 3209 in the J. Caleb Boggs Federal Building, 844 N King Street, Wilmington DE 19801. The change became effective October 4th, 2016.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

According to the United States Bankruptcy Court for the District of Delaware’s website, the Court has instituted an annual process to review and consider comments and revisions to its Local Rules.  See announcement here.  The comment period is October 1, 2016 through October 31, 2016.  All comments received will be considered by the Local Rules Committee. Revisions to the Local Rules will be effective February 1, 2017.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Court Pillars
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In an Alert published on Wednesday, Audrey Noll examines the U.S. Supreme Court’s recent ruling in Husky Int’l Elecs., Inc. v. Ritz:

Last month, the U.S. Supreme Court held that the “actual fraud” bar to discharge debts under Bankruptcy Code section 523(a)(2)(A) includes claims based on intentional fraudulent transfers, regardless of whether the debtor made a false representation to the creditor.

In Husky Int’l Elecs., Inc. v. Ritz, 2016 WL 2842452 (May 16, 2016), the justices reversed a Fifth Circuit ruling and resolved a split among the circuits on the issue of whether “actual fraud” under section 523(a)(2)(A) requires a false representation. (Compare In re Ritz, 787 F.3d 312 (5th Cir. 2015)(“actual fraud” requires false representation) with McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000)(“actual fraud” encompasses actual fraudulent transfer schemes that do not necessarily include false representation).)

The facts in Husky were fairly straightforward. Husky International Electronics, Inc. sold electronic device components to Chrysalis Manufacturing Corp., which failed to pay for about $164,000 worth of the goods. Chrysalis’s principal, Daniel Lee Ritz, drained Chrysalis of assets by transferring them to other entities that he controlled while Chrysalis was insolvent, and for less than reasonably equivalent value. Husky sued Ritz, seeking to hold him personally liable for the $164,000 debt based on fraudulent transfer and alter ego claims. Ritz then filed a Chapter 7 petition. Husky responded by filing a complaint in the bankruptcy court, objecting to the discharge of Ritz’s alleged debt under Bankruptcy Code Section 523(a)(2)(A) (making debt obtained by “false pretenses, a false representation, or actual fraud” nondischargeable).

To read Audrey’s full discussion of the court’s ruling, please visit the Fox Rothschild website.


Audrey Noll is counsel in the firm’s Financial Restructuring & Bankruptcy Department, in its Las Vegas office.

Court Pillars
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In an Alert published on Wednesday, Audrey Noll examines the U.S. Bankruptcy Court for the Northern District of Illinois’ recent ruling in In re Lake Mich. Beach Pottawattamie Resort LLC:

Lenders beware: An Illinois bankruptcy court recently ruled that a lender went too far in its efforts to stop a debtor from filing for bankruptcy. The court invalidated the lender’s “blocking director” provision for explicitly excusing the lender from considering any interests other than its own. See In re Lake Mich. Beach Pottawattamie Resort LLC, 2016 WL 1359697 (Bankr. N.D. Ill. April 5, 2016).

The LLC debtor owned and operated a vacation resort. After the debtor defaulted on its secured loan, it entered into a forbearance agreement that required the debtor to amend its operating agreement to establish the lender as an additional “special” member with the right to disapprove of any “material action,” including the filing for bankruptcy relief.

The amended operating agreement also provided that the special member was “entitled to consider only such interests and factors as it desires, including its own interests,” and “to the fullest extent permitted by applicable law, ha[d] no duty or obligation to give any consideration to any interests of or factors affecting the Company or the Members.”

Soon after the forbearance agreement was signed, the debtor defaulted again and the lender filed for foreclosure. The debtor filed a bankruptcy petition on the eve of foreclosure, authorized by the four non-special members. The lender’s special member did not consent.

As of the petition date, the property was worth in excess of $6 million and the secured loan was roughly half of that.

 To read Audrey’s full discussion of the court’s ruling, please visit the Fox Rothschild website.


Audrey Noll is counsel in the firm’s Financial Restructuring & Bankruptcy Department, in its Las Vegas office.

Court Pillars
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In an Alert published today, Audrey Noll examines the Seventh Circuit’s recent decision in Official Comm. of Unsecured Creditors v. T.D. Invs. I, LLP (In re Great Lakes Quick Lube LP):

A landlord who terminates a lease before the tenant’s bankruptcy may later be found to have received a preferential or fraudulent transfer and held liable to the bankruptcy estate for the value of the lease, the U.S. Court of Appeals for the Seventh Circuit has ruled.

In light of the March 11 opinion by Judge Richard Posner in Official Comm. of Unsecured Creditors v. T.D. Invs. I, LLP (In re Great Lakes Quick Lube LP), landlords would be wise to think carefully before terminating a lease after their tenant defaults. If the tenant subsequently files for bankruptcy, the landlord might find itself subject to substantial liability as the recipient of an avoidable transfer.

The debtor in the case, Great Lakes Quick Lube LP (Great Lakes), had owned more than 100 oil change and auto maintenance stores throughout the Midwest. It typically bought a store, sold it to investors and then leased it from the new owners under a long-term contract. When its debts were mounting and bankruptcy was looming, Great Lakes agreed with one particularly difficult landlord (T.D.) to terminate two leases – even though the leased stores were profitable. The debtor filed for bankruptcy less than two months later.

 To read Audrey’s full discussion of the Seventh Circuit’s ruling, please visit the Fox Rothschild website.


Audrey Noll is counsel in the firm’s Financial Restructuring & Bankruptcy Department, in its Las Vegas office.

U.S. Court of Appeals for the Ninth Circuit
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In an Alert published today, Audrey Noll examines the Ninth Circuit’s recent decision in U.S. Bank N.A. v. The Village at Lakeridge, LLC (In re The Village at Lakeridge, LLC), 2016 WL 494592 (9th Cir. Feb. 8, 2016):

Earlier this month, the Ninth Circuit ruled that an insider can sell its claim to a friendly third party, whose vote fulfills Bankruptcy Code section 1129(a)(10)’s requirement of an impaired consenting class, unless the third party has a close relationship with the debtor and negotiated the claim purchase at less than arm’s length. See U.S. Bank N.A. v. The Village at Lakeridge, LLC (In re The Village at Lakeridge, LLC), 2016 WL 494592 (9th Cir. Feb. 8, 2016).

When the Village at Lakeridge (the debtor) filed for bankruptcy, it had two primary creditors: the bank with a $10 million secured claim and the debtor’s sole equity holder (MBP) with a $2.76 million unsecured claim. After the debtor filed a plan seeking to cram down the bank, MBP sold its claim to a third party (Rabkin) for $5,000. Rabkin had no prior relationship with the debtor but had a close and personal relationship with one of MBP’s members.

To confirm the plan over the dissent of the bank, the debtor had to satisfy Bankruptcy Code section 1129(a)(10), which requires that at least one class of impaired creditors vote to accept the plan, excluding the votes of any insider. Bankruptcy Code section 101(31) defines “insider” as individuals and entities that fall within certain categories (e.g., officers, directors, affiliates, etc.), referred to as “statutory insiders.” Section 101(31) is not exclusive (“[t]he term ‘insider’ includes”), and courts have developed additional categories of “non-statutory insiders.”

The bank moved to designate Rabkin’s vote. The bankruptcy court held that although Rabkin was not a non-statutory insider and did not acquire the claim in bad faith, his vote should be disregarded because he acquired the claim from a statutory insider and the insider status tainted the claim. On appeal, the Bankruptcy Appellate Panel (BAP) reversed the ruling that Rabkin became a statutory insider by acquiring the claim of an existing statutory insider.

 To read Audrey’s full discussion of the Ninth Circuit’s ruling, please visit the Fox Rothschild website.


Audrey Noll is counsel in the firm’s Financial Restructuring & Bankruptcy Department, in its Las Vegas office.