Exploring New Approaches to Unsettled Legal Questions

Tag: Duberstein Bankruptcy Competition Page 1 of 2

To Release or Not to Release: Investigating the Legality of Non-Consensual Third-Party Releases in Bankruptcy

by Justin Simms*

Perhaps the most pressing question in American bankruptcy law has been posed by the Purdue Pharma L.P. (“Purdue”) bankruptcy: do bankruptcy courts possess the authority to approve non-consensual releases of direct claims held by third parties against non-debtor affiliates as part of a Chapter 11 plan of reorganization? The complexity and practical import of this question, as well as the Bankruptcy Code’s ambiguity on the topic of non-consensual third-party releases, have caused a divide in the federal judiciary. After the Court of Appeals for the Second Circuit approved Purdue’s proposed plan of reorganization in May 2023, the United States Supreme Court granted certiorari. This Contribution argues that bankruptcy courts lack the authority to approve releases of direct claims held by third parties against non-debtor affiliates on statutory, jurisdictional, and constitutional grounds.

The Odd Man Out: How The Oddities of The Debtor-in-Possession Mechanism Suggest That § 547(c)(4)(B)’s Otherwise Unavoidable Transfers Must Be Pre-Petition

by August Meny*

In Chapters 7, 13, and some Chapter 11 bankruptcies, an administrative payment under § 503(b)(9) made by a trustee would not constitute an “otherwise unavoidable transfer” under § 547(c)(4)(B), meaning that creditors can use both § 503(b)(9) and a § 547(c)(4) defense to protect their transfers. However, the unique role of debtors-in-possession in some Chapter 11 bankruptcies has led some courts to interpret § 503(b)(9) as foreclosing the § 547(c)(4) defense under (c)(4)(B) when a debtor-in-possession makes the transfer. This Contribution argues that this differential treatment of § 547(c)(4)(B) in Chapter 11 bankruptcies involving debtors-in-possession erroneously strays from the principle that debtors-in-possession should be treated the same as trustees, and that § 547(c)(4)(B) should be read to apply only to pre-petition transfers across all major forms of bankruptcy.

“All Obligations”: The Consequences of Rejecting a Commercial Lease in Bankruptcy

by Kevin Lissemore*

11 U.S.C. § 365 grants a bankruptcy trustee or debtor in pos-session the power to reject executory contracts and unexpired commercial leases. Subsection (d)(3) specifies that, while the bankrupt party is deciding to assume or reject a lease, the trustee must “timely perform all the obligations of the debtor” under the lease. This subsection has given rise to significant litigation when a debtor opts to reject their lease in the middle of a rental period, particularly where the lease makes the entire period’s rent due in advance on the first day of the period. The landlord and bankrupt parties in this situation disagree about what a bankrupt party is obligated to pay: the entire rent for the final rental period or a prorated cost that covers the period prior to the rejection. However, the plain text of the statute only embraces the former interpretation. Beyond the clear textual basis, additional interpretive resources like the statutory purpose and preferable policy outcomes also align with this interpretation, resulting in an undeniable interpretation in favor of landlords.

Automatic Repeal? The Automatic Stay and the Federal Arbitration Act in Bankruptcy Proceedings

by Lorenzo Antonio Hoppe Villegas*

While the Bankruptcy Code’s automatic stay halts actions against debtors who have declared bankruptcy, the Federal Arbitration Act (“FAA”) may nonetheless require debtors to resolve disputes with their creditors in arbitration. In this Contribution, Lorenzo Villegas (’22) argues that the passage of 11 U.S.C. § 362 and related judicial code provisions does not impliedly repeal the Federal Arbitration Act (“FAA”). Therefore, arbitration agreements between creditors and debtors who have filed a Chapter 11 bankruptcy petition are valid and enforceable in the face of the Bankruptcy Code’s automatic stay in some circumstances.

Lost at (c): Making Sense of § 362(c)(3)(A)’s Ambiguous “With Respect to Debtor” Language

by Lucas Knoll*

The automatic stay, which prevents collections against debtors, is perhaps the most important part of bankruptcy law. In 2005, Congress created a limitation on the automatic stay: 11 U.S.C. § 362(c)(3)(A). The text of the new provision is not clear, and can lead to two interpretations. The text relies on odd phrasing: “with respect to the debtor.” The minority view is that the automatic stay should terminate for both the debtor and the debtor’s estate. The majority view is that the statute terminates the automatic stay only for the estate. In this Contribution, Lucas Knoll (’22) argues that the minority view’s understanding of “with respect to the debtor” should be adopted.

One Means One: The “Per Plan” Approach to Section 1129(a)(10)

by Elaine M. Andersen*

Negotiating a plan of reorganization is the most consequential aspect of a Chapter 11 bankruptcy process for both debtors and creditors. The balance of power in that negotiation process is principally defined by the requirements for voting and plan approval which are laid out in section 1129(a) of the Bankruptcy Code. Courts are divided as to whether, in a case where a class of claims is proposed to be impaired under a joint, multidebtor plan, section 1129(a)(10) of the Bankruptcy Code re-quires acceptance from at least one impaired class of claims of any one debtor (the “per plan” approach) or, alternatively, acceptance from one impaired class of claims of each debtor (the “per debtor” approach). In this Contribution, Elaine Andersen (’21) argues that the “per plan” approach better comports with the text, context, and purpose of the section.

Two Swords for Bankruptcy’s Gordian Knot: Making Sense of Section 365

by Benjamin S. Winter*

Observers generally agree that the assumption of executory contracts by debtors in possession in Chapter 11 proceedings promotes the purposes of the Bankruptcy Code and accords with Congress’ intent. Yet courts have been riven by the question of whether the plain text of section 365 allows the practice. This Contribution argues that courts forbidding assumption of executory contracts by debtors in possession have misdirected the focus of their textual analysis. Close examination of an overlooked phrase within section 365 and of the interactions between sections 365 and 1107 provides two independent textual bases for courts to read the Code in keeping with congressional intent.

Striking a Balance: Resolving the Conflicts Between Sections 363 and 365 of the Bankruptcy Code

by Gavin Mackie*

The balancing act that is the United States Bankruptcy Code sometimes leads to a tension between sections of the Code that grant rights to debtors and those that provide protections for parties with an interest in the debtor’s property. In this Contribution, Gavin Mackie (’19) explores the conflict between Sections 363(f) and 363(h) and how courts have approached situations where this conflict arises. Ultimately, this Contribution will argue that the possessory rights guaranteed by section 365(h) should be protected in any sale, and that a sale under 363(f) cannot eliminate the lessee’s interest.

The Applicability of the Absolute Priority Rule in the Context of Pre-Plan Settlement Agreements

by Nathan Gencarella*

Can a bankruptcy court may approve a priority-skipping “gift” settlement in a Chapter 11 proceeding prior to the approval of a final plan over the objection of a disadvantaged class of creditors? In this Contribution, Nathan Gencarella (’19) argues that the principles of the recent Supreme Court decision Czyzewski v. Jevic Holding Corp. necessitate the application of the absolute priority rule to pre-plan settlements in order to preserve the integrity of the Bankruptcy Code’s carefully calibrated priority scheme. Ultimately, this Contribution establishes that this extension of Jevic is re-affirmed by both the dictates of public policy and the underlying text of the statute itself.

Discharging the Debt of a Third-Party Non-Debtor is Within the Authority of the Bankruptcy Courts

by Chelsea Ireland*

Is discharging the liability of a third-party non-debtor within the authority of the bankruptcy courts? In this Contribution, Chelsea Ireland (’18) addresses the circuit split as to whether bankruptcy courts can confirm reorganization plans that discharge the acquiring company’s liability to a class of creditors. This Contribution will argue that the discretion to discharge the liability of a third-party non-debtor is within the authority bankruptcy courts.

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