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Bankruptcy
SUNY Buffalo Law School
Brown, Steven Todd

Bankruptcy

Brown

Fall 2011

GENERAL:

· Big Picture – think of BK as a whole before looking at statutes, can figure out and predict how the proceedings will go

o Debtors (Δ) and Creditors (C) benefit society, want a program to protect them

o BK encourages people to take risk despite seeing other people fail

· BK Balances rights of various distinct parties and interests

o Chapter 7 (C7) $/assets goes to or martial in the Estate controlled by the Trustee (TIB), who then distributes the proceeds accordingly to any C with a valid claim.

§ Distributed based on priority of claims: Secured(1st, 2d… get paid in full) →Administrative (TIB/Atty fees) →Unsecured (divide funds on a pro rata basis) →Equity holders (Shareholders)

§ C7 is martialing the assets, building up the asset pool

o Chapter 11/13 (C7/C13): Restructuring/Reorganizing

§ C11 is primarily businesses of extremely wealthy (Michael Vick)

§ How can a payment plan be structured so it doesn’t involve selling all assets to pay C, let Δ keep some of all of the assets and figure out how to pay off

o Discharge: C7 →immediately when complete: C11→after entire plan paid

· Benefits to the Δ:get discharged/debt expunged, become free from the debt and obtain a fresh start

o Automatic Stay: stays action against estate/ Δ, preserves assets pool from the race to the courthouse

· Benefits to the C: get something, better than possibly getting nothing

o Maximizing recovery by maximizing $ coming in, Δ can’t hide it

o Transparency: make what’s going on with company transparent, get to see their monthly statements showing the $ in, $ out, and $ due

o Standing: Get to be heard on anything that needs to be heard, now have a forum

o Vote: power to vote/veto on any plan that affects your interest

o Protects C from each other, outside they are all going for that target (Δ)

· Stages of the case:

o (1) Filing: Δ can file, or a group of Cs can force an involuntary BK

§ Must file in good faith or face sanctions

§ Also sanctions on Δ for disclosure or trying to hide assets

o (2) Administration: Stamped file then automatic stay, creation of estate after martialing

§ Protects estate from Δ misconduct, restricts use of property

§ C7 always has TIB, C11 sometimes TIB but mostly Debtor in Possession (DIP)

§ DIP has a lot of restrictions on money management, must have a paper trail

§ Avoidance action: designed to recover estate funds from C

· Fraudulent conveyances, preferences: someone gets more than they should have gotten, it is unfair to Δ and other Cs

· Provides estate with ability to assume/assign or reject leases

o (3) Plan Confirmation (Only in restructuring C11/C13)

§ Build plan of how you’ll pay with $ or a Note

§ A lot of limits in what you can do. Prohibits unfair treatment to Cs unless they consent

§ Feasibility: can’t build plan based on visionary future gains, plan must be reasonable and realistic

§ Good faith: intent, did plan intend to be compliant with the process according to the Code

§ Creditor voting: At least one class of impaired C’s must approve your plan

· No GF requirement on C voting, any reason for the vote is sufficient

o (4) Discharge: Central focus on modern BK

§ Δ: big carrot to get them to do everything: disclose, GF, etc

§ If you do what we ask you to do, when process is over, you get a fresh start

§ Conditioned on satisfaction of demands/amendments/requirements

§ Δ/Cs checked, BK court must approve, US Trustee has authority to contest actions

· Trustees

o US Trustee can object or contest action along with administrative duties

o TIB is an individual selected from a trustee pool, they step into BK to administer estate and have clearly defined duties – C13 TIB gets check from Δ and decides how to pay Cs

· Official Committees

o Appointed to represent Cs of estate, usually unsecured

o Big cases will have at least one committee, biggest cases will have 2-3 committees

o TIB looks at Cs, decide who to be on the committee

o Committee then will hire own attorney and financial advisors

o Standing to object to everything, even to bring their own motions/actions

· Examiner: As in Enron/Lehman, if the BK is such a mess that no one can tell us what went on, so bring in examiner to interview and put together the pieces of the puzzle: can’t serve as a de facto trustee though

· Section 105(a) usually has something you can hang your hat on for BK questions:

o Gives BK Ct equitable power to handle cases

o (i) gives court ability to enter orders to protect integrity of BK process

o (ii) achieves any provision of the Code

o (iii) cannot be used to undermine provision of Code

o (iv) cannot be used to extend BK courts SMJx or PJx

· Art. III Fed Courts: District Court, Circuit Court, Supreme Court

o BK: Same level as DC, but DC can remove any case that it desires

o Magistrate/Adjuncts: depends upon authority granted, they are not Art. III judges, so they lack authority to assert judicial power by giving final judgment

o Able to review claims, decide if there is a claim, refer decision to someone who can make final

o BK Code 1978 changed all this, no longer referees, called BK Courts, so purely judicial, no longer file then someone else decide the case

o BK was own animal, didn’t even report to DC, if appeal could go directly to DC

MARSHALL/PIERCE v. MARSHALL (Anna Nicole Smith = ANS)

· Following the line of Northern Pipeline in BK Court, Δ says “I don’t consent and BK Ct has no authority”

o Seeking to bring money into the estate, but 4 justices say it’s wrong, needs to be wiped out

· Son doesn’t like ANS, leaves her out of the will he has his father sign

o Issue: Did son intrude into her estate by preventing any gift

· 1995 ANS sues step-son, at same time her attys are on TV blasting Piece, which he doesn’t like

o Pierce sues ANS lawyers for defamation, then ANS files BK in CA and NOT TX where the probate matters are going on regarding decedent’s will

· Pierce commences adversary proceeding in cross motion in ANS BK case

o Debts to him under defamation should not be dischargeable…

· Main point for reading case: Gap between what BK Code warrants and what Constitution allows

o (1) Authority under judicial code to enter order? Yes, statute allows it, includes counter claim

o (2) Does authorization fall into “public rights” exception that all public matters should be heard by Art. III courts? NO, this is a PRIVATE RIGHT, under BK Code and state law

§ BK courts allowed final judgment on only “core proceedings”

§ “a

ach this differently, some if “substantially” earned or met conditions then part of the estate

· Estate takes equitable right and gives to estate

· §105a = Fill in gaps, no create rights, can’t rewrite code

STRADA DESIGN

· Is it property of the estate? If so, too bad, if not, atty pays check to trustee in error. Look at §541 first, then to state law for how right revolves

· State law – look to see if it would qualify as a “legal or equitable right interest” at time of filing

o Did Δ have legal or equitable interest when files, the State will say when the claim arises

· Claims are clearly POE; filing claim of malpractice accrued when filed before and including ‘”as of”

· Post-petition: §541(a)(7) sweeps in additional future injuries/interest

o Is derivative of initial estate that is already part of POE

IN RE ORKIN

· §541(c)(1) : let’s look at restrictions preventing BK from reaching assets

o Estate is different identity than Δ, but should it be protected

· §541(c)(2): exception to the general rule, can exclude assets from the estate

o C can’t go after proceeds out of BK, can’t go after them in BK

o Rights of BK aren’t expanded, must look at non-BK, state/Fed or whether C can’t get to $

· Δ saying it’s retirement, so can’t get to it under ERISA; HOWEVER, he is the employer, so he doesn’t get the same protection

· Goes to MA laws: “spend thrift trust”: (1) needs separate, independent trustee; and (2) needs a clause restricting transfer of assets of plan – an anti-alienation clause

o Do this to prevent beneficiary from getting at corpus, it’s not reachable

· Δ is the Trustee, he could terminate the account at his discretion

· THUS, not Fed/ERISA or State/”Spendthrift”=no immune to C’s outside of BK

· START WITH §541 when determining what property to include

o SECOND, look at State or non-BK law to see how it’s handle, could Cs reach

o Filing creates a “snapshot” of what should be property

· §541© gives rights to touch property of estate, expanding what could be reached before

IN RE BURGESS

· Brothel, filed C11, later state Commissioner revoked Brothel license, Δ appealed

· Larger Q = action to revoke license violated automatic stay? Must see if it’s property of estate

o State tells us what rights are, Fed tells us what constitutes POE – Fed says license is POE

· Other similar cases: liquor licenses are property, attorney license is not

o Didn’t need “skill set” for liquor license, atty license he would

o State still has control over who holds licenses, whether estate has authority to keep/hold such that an action against it would violate the automatic state