Contributed by Debra A. Dandeneau.
The Weil Bankruptcy Blog has been busy writing about all the hottest bankruptcy issues, while at the same time giving you some longer weekends with our Bankruptcy Beach Reading light reading. In the spirit of the back to school season (which has started for many students around the country even if the New York region still adheres to the post-Labor Day model), for the rest of this week we will be stepping back and giving you the CliffsNotes/Spark Notes/Masterplots (choose your generation) version of our entries over the last eight weeks. Given the state of the stock market, don’t you think now is the time to start cramming?
Will We Ever Get to Test Whether a Bitcoin Exchange Is an Eligible Debtor?
Over several posts, the Weil Bankruptcy Blog explored some of the potential obstacles to a bitcoin exchange’s eligibility to be a debtor under the Bankruptcy Code. In the most recent post, Banks and Bitcoin Exchanges, Scott Bowling considered whether a bitcoin exchange would be considered a bank. Most types of banks are ineligible to be debtors under section 109(d) of the Bankruptcy Code. Scott concluded that bitcoin exchanges likely would not be considered to fall within the category of banks that are ineligible to file because bitcoin exchanges generally do not accept deposits (unless you consider bitcoin wallets the equivalent of a deposit account), bitcoin exchanges are not presently regulated like banks, and bitcoin exchanges have no available resolution framework outside of bankruptcy law.
Structured Dismissals Just Got a Little More Popular
Within the last few years, structured dismissals went from an unknown concept to a more accepted exit strategy (particularly after 363 sales) that permits an estate with limited assets to bypass both conversion to a chapter 7 and confirmation of a plan. After the Third Circuit issued its decision in In re Jevic Holding Corp., Abigail Lerner and Blaire Cahn explained in their two-part series, Third Circuit Authorizes Structured Dismissals in Limited Circumstances and In a Close Call, Third Circuit Approves Settlement Agreement and Structured Dismissal that Deviate from Bankruptcy Code’s Priority Scheme what a structured dismissal is and the importance of the decision by the Third Circuit to uphold the strategy. As Abby explains in more detail, a structured dismissal is dismissal of the chapter 11 case under section 1112(b), but one that is preceded by orders of the court that may approve settlements or establish claims allowance and distribution procedures, among other things. In Jevic, the Third Circuit held that dismissal of a case need not return all parties to the status quo ante, but may be affected by orders of the bankruptcy courts that alter the effects of dismissal. Specifically, the Third Circuit refused, in a close call, to overturn a settlement that placed funds received from settling defendants in a fraudulent transfer action into a trust that would make distributions to unsecured creditors, subject to dismissal of the bankruptcy case. Such settlement and dismissal, however, avoided the priority distribution rules of section 507 of the Bankruptcy Code and, therefore, eliminated the right of certain former employees to obtain a distribution ahead of other unsecured creditors. In the particular case of Jevic, the Third Circuit concluded that the structured dismissal that had been approved by the bankruptcy court was the “least bad alternative” given that, if the case had been converted, the unsecured creditors would have received no distribution.
ABI Commission Likes the Flexibility in Existing Valuation Methods
As part of our continuing series on the ABI Commission’s recommendations on changes to the Bankruptcy Code, we also have reported on the Commission’s recommendations to leave existing principles in tact. One such approach that the Commission recommended be left unchanged was valuation in bankruptcy cases. In If It Ain’t Broke, Don’t Fix It, David Griffiths discusses the three principal valuation methodologies in bankruptcy – the cost/asset based approach, the market approach, and the income approach – against the backdrop of the ABI Commission’s decision to stick with the flexibility afforded by allowing courts to determine the appropriate methodology under the circumstances of the case.
Circuits Can’t Agree on the Barton Doctrine
Every now and then, we come across a decision addressing the Barton doctrine – the principle derived from the 1881 U.S. Supreme Court decision that required a party seeking to sue a court-appointed individual (there, a receiver). It is rare, though, when we find not only two new circuit court decisions addressing the doctrine, but ones that disagree with each other. That is the situation discussed in Alana Heumann’s entry, A Tale of Two Circuits: Recent Applications of the Barton Doctrine. The split between the Eleventh Circuit and the Fifth Circuit focuses directly on the doctrine in bankruptcy – to what extent should the Barton doctrine apply at all to suits against bankruptcy trustees or other individuals whose retention is approved by the court. The Eleventh Circuit, applying the doctrine broadly, held in Coen v. Stutz (In re CDC Corporation), held that the doctrine applied to protect a chapter 11 debtor’s general counsel because he had agreed to serve at the request of the debtor’s chief restructuring officer, and his “executive service agreement” had been approved by the court. In contrast, the Fifth Circuit interprets Barton narrowly and held in Carroll v. Abide that the Barton doctrine does not apply when a suit is brought in the same court that appointed the trustee.
The Latest Issues on the 363 Scene
Several articles during this period addressed disputes arising in the context of 363 sales. In Onward, Christian Soldiers: Some Guidance on 363 Sales, Fair Auctions, and Proposed Sales to Insiders, Doron Kenter discussed the problems faced in In re Family Christian, L.L.C., when a not-for-profit operator of a chain of stores selling religious merchandise sought approval to sell their assets to their founder after an auction that the court described as “nothing less than chaotic.” The bankruptcy court, however, concluded not only that the auction was “flawed,” but that the debtors had failed to demonstrate a sound business justification for the sale. Charlie Chen addressed an issue relevant to coal cases – what is the nature of a contract that grants an exclusive right to mine and remove coal, and is that right assignable notwithstanding an anti-assignment provision? As discussed in Kentucky Bankruptcy Court Holds That Coal Mining Lease Is Not an Executory Contract or Unexpired Lease and Is Transferable Pursuant to Section 363 Despite an Anti-Assignment Provision, the bankruptcy court in In re Manalapan Mining Company, Inc. applied Kentucky law and determined that the coal mining leases at issue represented conveyances of property interests and not real property leases. Moreover, because the leases required the lessor not to unreasonably withhold its consent to assignment, the court found that the lessor was unreasonable in withholding its consent, and the debtor could assign its rights under the leases over the lessor’s objection.
Speaking of consent, what does it mean for a holder of an interest in property to “consent” to a sale free and clear of such interest under section 363(f)(2) of the Bankruptcy Code? Debora Hoehne discussed a recent decision holding that silence does not constitute the requisite consent under section 363(f)(2) in Does Silence Mean Consent? Some Courts Have Found That It Does Not (at Least for Purposes of Sales Under Section 363(f)). Under that decision, “consent” requires an affirmative consent by the lienholder, not a failure to object after receiving notice of the proposed sale. It is worth noting that, in that case, the selling debtor did not appear to seek authority under any other subsections of section 363(f).