Webinar: The Ins and Outs of Extraterritoriality in Bankruptcy Cases
Debtors frequently transfer assets to foreign transferees....
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Debtors frequently transfer assets to foreign transferees. Recovering those assets in bankruptcy as a preference, fraudulent transfer, or unauthorized post-petition transfer, might require convincing the Bankruptcy Court that applicable sections of the Bankruptcy Code apply extraterritorially.
Opinions among the circuits are far from uniform, and recent cases have only widened the disparate views. Convincing a Bankruptcy Court to assert jurisdiction over an avoidance claim involving a foreign transferee may hinge on understanding the different perspectives that courts have been applying to the concept of “extraterritoriality.”
In the complimentary CLE-accredited webinar “The Ins and Outs of Extraterritoriality in Bankruptcy Cases,” SulmeyerKupetz Senior Counsel Dave Richardson will discuss extraterritorial application of the Bankruptcy Code’s avoidance statutes, as well as:
- What constitutes an extraterritorial issue, as opposed to one of personal jurisdiction.
- The varying tests that courts apply to determine if the avoidance statute can be applied extraterritoriality.
- The practical realities of collection after extraterritorial application of an avoidance statute.
- Whether the doctrine of Comity is likely to prevent the Bankruptcy Court from hearing an avoidance claim against a foreign defendant.
The webinar will be held on Thursday, October 26 at 11 AM. Register now!
In Deutsche Bank Trust Co. v. McCormick (In re Tribune Co. Fraudulent Conveyance Litig.), the Second Circuit Court of Appeals stated that “once a party enters bankruptcy, the Bankruptcy Code constitutes a wholesale preemption of state laws regarding creditors’ rights”— a conclusion that appears to be at odds with U.S. Supreme Court precedent. In the article “Federal Preemption of State Constructive Fraudulent Transfer Law Applied to Financial Institutions Serving as Conduits in the Tribune Company Case,” authored for Norton Annual Survey of Bankruptcy Law’s 2017 issue, David Kupetz discussed this ruling and the contrary ruling of the Seventh Circuit in FTI Consulting v. Merit Management Group, L.P., currently pending before the Supreme Court. The broad application of implied preemption of state law in Tribune raises concerns that the conventional presumption has been jettisoned by the Second Circuit.
Bankruptcy Code Section 546(e) provides a safe harbor for certain transferees of constructive fraudulent transfers. The courts of appeals have ruled inconsistently on whether section 546(e) applies to intermediaries merely serving as conduits. Four circuits, including the Second Circuit in Tribune, have held that financial institutions serving simply as conduits are protected by the safe harbor.
The Tribune court inferred preemption based not on statutory language, but rather based on what it identified as strong policy reasons for protecting shareholders. However, creditors’ longstanding power to pursue state law fraudulent transfer claims derives from state law, and whether Congress stripped away that power without expressly saying so is a serious question. Kupetz concludes the article by noting that under the Tribune approach, transactions could simply be structured (as many are) to insulate shareholders from fraudulent transfer liability simply by passing payment through a financial intermediary. Under these circumstances, protecting creditors’ rights seems to be the stronger bankruptcy policy concern.
Member David Goodrich will present on the Los Angeles Bankruptcy Forum’s panel “How to Conduct a Better Sale Process” on October 2 at the L.A. Hotel in Los Angeles. The panel also features the Honorable Neil W. Bason with the United States Bankruptcy Court, Sharon M. Kopman with sk2 Partners, LLC and Oak Point Partners and George Saoud with Fidelity National Title Group.
The panel will explore recent trends involving sales under Section 363, including sales of real property free and clear of liens and leases, as well as specific issues confronting sellers, buyers and title companies when sale orders are appealed.
The Los Angeles Bankruptcy Forum is a leading educational and networking resource for bankruptcy and insolvency professionals in the Central District of California, with an emphasis on Los Angeles, the San Fernando Valley and Santa Barbara.
In the recent case Czyzewski v. Jevic Holding Corp (Jevic), the Supreme Court ruled that bankruptcy courts lack the legal power to approve the structured dismissal of any Chapter 11 bankruptcy case “that provides for distributions that do not follow ordinary priority rules without the affected creditors’ consent.” In the Los Angeles Lawyer article “No Skipping Allowed,” David Kupetz analyzed the Jevic ruling and discussed the interaction between the priority rules of the Bankruptcy Code and dismissal of a Chapter 11 case, as well as the concern that expansion of the Jevic ruling may undermine future bankruptcy court discretion.
In its ruling, the Supreme Court emphasized that the Bankruptcy Code’s priority system is a “fundamental underpinning of business bankruptcy law.” It found that letting structured dismissals circumvent this system would nullify protections Congress has granted certain classes of creditors (such as employee wage claims), increase the risk of collusion and make settlements harder to achieve. The Supreme Court also rejected the bankruptcy court’s findings in the Jevic case that a priority-violating settlement was the only means for recovery by unsecured creditors, and that the terminated employees involved in the case were not harmed since they would receive nothing under any scenario.
Kupetz concluded the article by noting that though the Court did not explicitly reach beyond the interplay between priority rules and Chapter 11 dismissal, concerns persist that the scope of the Court’s ruling could be expanded, undermining necessary bankruptcy court discretion with regard to settlements in general, as well as certain types of structured dismissals.
We are pleased to announce that the Executive Committee of the Business Law Section of the State Bar of California has appointed Jason Balitzer as a member of the Business Law Section’s Insolvency Law Committee (ILC).
The ILC serves as a forum to educate lawyers nationwide on recent developments and current issues in the field of insolvency law and also provides a platform to review, comment on, and propose legislation relevant to insolvency lawyers. As a member of the ILC, Mr. Balitzer will work with other ILC committee members to establish and implement the ILC’s goals during the course of his three-year term of membership.
With consumer purchasing preferences having a profound effect on brick-and-mortar stores, retailers have been forced to adjust to changing trends and find their place in the online market. Bloomberg BNA turned to Member Victor Sahn to weigh in on the challenges facing retailers.
“Even the behemoth Walmart is blinking under the glare of Amazon’s popularity and scrambling to find its place in the online marketplace,” said Sahn. “Malls are going to need to shrink or repurpose for other uses. They’re going to have to focus on ‘right-sizing their footprints.’”