Recent Developments in Bankruptcy Law

On her The Bottom Line 11 blog, Fox partner Mette Kurth examined new bankruptcy venue reform legislation recently unveiled in the U.S. Congress:

U.S. Capitol Building, Washington, D.C.Earlier today, Senators John Cornyn (R-TX) and Elizabeth Warren (D-MA) introduced the Bankruptcy Venue Reform Act of 2017The bill would require companies to seek bankruptcy protection where they are physically headquartered. And it would simultaneously prohibit them from filing where they are incorporated or where an affiliate has a pending case. The end result? The bill would effectively limit access to popular bankruptcy courts in New York and Delaware. If passed, this would represent a seismic shift for corporate bankruptcies.

Sens. Cornyn and Warren said in a joint statement that the bill is meant to strengthen the integrity of the bankruptcy system and build public confidence by preventing companies from “shopping” for favorable courts. The bill is also intended to allow employees at bankrupt companies, small business creditors, and others to participate in cases that will have tremendous impacts on their lives.

To read Mette’s viewpoint on the new legislation and its impact, please visit her blog.

On her The Bottom Line 11 blog, Fox partner Mette Kurth notes an expected imminent push in the U.S. Congress for bankruptcy venue reform:

U.S. Capitol Building, Washington, D.C.I have barely unpacked my suitcases, and yesterday the Commercial Law League of America (CLLA) announced that a bankruptcy venue reform bill will be proposed this week in the U.S. Senate. The bill will to seek to change the venue rules for filing Chapter 11 business cases. If you want to view the CLAA’s press release, it is available here. (The CLLA previously supported S.314 (109th Congress 2005-2006) and H.R.2533 (112th Congress 2011-2012), which were not enacted.)

To read Mette’s full discussion of the debate over the reforms, which are set to be proposed the week of December 18, 2017, please visit her blog.

On her The Bottom Line 11 blog, Fox partner Mette Kurth examined a recent U.S. Court of Appeals for the Second Circuit decision in In re MPM Silicones (the Momentive case). The court followed the lead of the Sixth Circuit in establishing a two-step approach to setting the cramdown interest rate on debtor payments for secured claims:

Court Pillars
Copyright: bbourdages / 123RF Stock Photo

A simple proposition—that secured lenders are entitled to receive payments with a present value at least equal to the amount of their claim—has proven surprisingly difficult to apply as courts have pondered whether to follow a “formula approach” or a “market approach” to establish an appropriate “cramdown” interest rate. (A primer is available here if you are new to the debate.)

Secured lenders have scored a significant win in the recent Second Circuit decision in the Momentive case, In re MPM Silicones. Siding with the Sixth Circuit, the Second Circuit has decided that the prevailing market rate for comparable debt should be used—if there is an efficient market for such debt—and that the formula approach should be used only if no efficient market exists.

To read Mette’s full rundown of the decision and its impact, please visit her blog. Mette also provides background on cramdown interest rates in a separate post.

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
Copyright: bbourdages / 123RF Stock Photo

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.