Outside of section 506(b) of the Bankruptcy Code, which affords secured creditors a right to enforce their contractual entitlements to fees, the Bankruptcy Code does not expressly give creditors a right to seek reimbursement of fees incurred during a debtor’s bankruptcy. Section 503(b)(3)(D) of the Bankruptcy Code, however, permits a creditor to seek reimbursement of fees and expenses incurred by the creditor in making a “substantial contribution” to the case. In assessing a creditor’s “substantial contribution,” where does the bankruptcy court draw the line between the consequences of a creditor acting out of self-interest to capture the maximum value from the debtor’s estate as opposed to the effects of a creditor acting to uphold the integrity of the bankruptcy system? Does the motive even matter if the results benefit the estate? In a recent decision, the Bankruptcy Court for the Eastern District of Pennsylvania adopted a framework for answering these questions. Continue reading >>

WARN Act Plaintiffs Ask, “Are You My Employer?”

October 22, 2014

In the well-known children’s story book written by P.D. Eastman and edited by beloved Dr. Seuss, a baby bird embarks on a quest to find his mother, asking a hen, a dog, and a kitten, among others, the famous question, “Are you my mother?”   If Dr. Seuss had penned the recently-decided case of Thielman v. […]

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No Protection in Ponzi Schemes: Utah Bankruptcy Court Limits Investors’ Ability to Retain Returns on Investments

October 21, 2014

Although the bankruptcy world has long been acquainted with Ponzi schemes, the courts have not clearly answered the question of how to distribute investors’ funds after a scheme fails – especially in the scenario where certain investors profit. The United States Bankruptcy Court for the District of Utah recently weighed in on the issue in Gillman […]

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Almost Favored – Court Denies Settling Defendants’ Attempt to Recover Under Most Favored Nations Clause

October 20, 2014

Being one of the first defendants to settle claims has its pros and cons. On the one hand, defendants may avoid protracted litigation. On the other hand, future defendants may ultimately negotiate lower settlement amounts. To avoid “leaving money on the table,” defendants who settle early may seek to include an equal treatment provision, or […]

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Can You Inadvertently Waive Your Automatic Stay Rights Goodbye?

October 17, 2014

As a general rule, bankruptcy courts do not enforce provisions in organizational documents, loan agreements, or other prepetition contracts that purport to alter or waive the protections of the Bankruptcy Code. As with most rules, however, there are exceptions. We have previously discussed, for example, provisions that waive the borrower’s right to seek bankruptcy protection […]

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A Comity of (Reversible) Error: Second Circuit Finds Foreign Debtor’s Claim Against U.S. Debtor Is “Located” in the United States

October 16, 2014

The ability of a foreign debtor to avail itself of the protections of the Bankruptcy Code, such as the automatic stay, with respect to its property located within the United States is one of the most fundamental and valuable tools available to foreign debtors with domestically located property. When a foreign debtor obtains “recognition” of […]

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Post-Filing Interest in a CCAA Proceeding: Re Nortel Networks Corp.

October 15, 2014

NORTH OF THE BORDER UPDATE This article has been contributed to the blog by Ziyi Shi. Ziyi Shi is an associate cross-appointed to the Corporate Group and the Insolvency Group of Osler, Hoskin & Harcourt LLP. In lengthy insolvency proceedings, interest accrued on existing claims during the “post-filing” period can represent a substantial portion of […]

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