The South Bay Law Firm Law Blog highlights developing trends in bankruptcy law and practice. Our aim is to provide general commentary on this evolving practice specialty.
 





 
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      Insolvency News and Analysis - Week Ending October 17, 2014
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    Posts Tagged ‘United States Court of Appeals for the Eleventh Circuit’

    Insolvency News and Analysis – Week Ending September 19, 2014

    Friday, September 19th, 2014

    Seal of the United States Court of Appeals for...

     

    Claims

    Court Denies Administrative Priority Status to Seller Whose Goods Were Not Received by the Debtor

    Auction Design for Claims Trading

    Sales

    Purchasers at Bankruptcy Sales — They can’t be bad and expect to be protected as “good”

    Secured Claims and Credit

    Perfection and the New Jurisdiction-Hopping Corporations

    Mysteries Of The Uniform Commercial Code: Leases Of Goods That Become Installed In, Affixed To, Or Mixed With Other Goods

    Credit Bid: Loan-to-Own Strikes Out

    Credit Bid (Round 2): What Does It Take to Show “Cause”?

    A Refresher on Lender Liability

    Sales

    Weathering the Storm: Eleventh Circuit Vacates Four-Year-Old 363 Sale Order Based on Bad Faith Filing of an Involuntary Bankruptcy Case

    Confirmation

    The Role of Profit in Valuing Chapter 11 Cramdown Paper

    Momentous Decision in Momentive Performance Materials Part IV: Make-Wholes and Third Party Releases

    Intellectual Property

    The Messy Problem of IP Licensing During Bankruptcy

    Cross-Border

    PUSHING THE BORDERS OF CHAPTER 15: WHEN A FOREIGN REPRESENTATIVE “FLOUTS” THE PURPOSES OF CROSS-BORDER INSOLVENCY

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    Insolvency News and Analysis – Week Ending September 5, 2014

    Friday, September 5th, 2014
    Delaware license plate from personal collection

    Delaware license plate from personal collection (Photo credit: Wikipedia)

     

     

     

     

     

     

     

    Trends

    [Bankruptcy Filings and] High Yield Debt

    Bankruptcies down in Delaware, US

    Corporate Governance

    LLC Managers Beware: Get Involved With Member Distributions By an Insolvent LLC and You May Be Personally Liable

    Financial Markets

    Rolling Back the Repo Safe Harbors

    Sales

    Eleventh Circuit Directs Bankruptcy Court to Vacate Sale Order Based on New Evidence that Involuntary Bankruptcy Case Was  Filed In Bad Faith

    Secured Claims

    The (Il)Legitimacy of Bankruptcies for the Benefit of Secured Creditors

    Avoidance and Recovery

    Caveat Debtor: Liens Preserved Pursuant to Section 551 Subject to Defects Under State Law

    The Uniform Voidable Transactions Act – New Section 11 and Series LLCs

    Fraudulent Transfer: A Case Where Strong Arm Powers Were “An Inch Too Short”

    Fifth Circuit Provides Valuable Guidance on Jurisdiction and Authority Post-Stern

    Confirmation

    S.D.N.Y. Bankruptcy Court Denies Claim for Make-Whole Premium and Allows Cram Down of Debtors’ Chapter 11 Plan Paying Secured Creditors Below-Market Interest Rates on Replacement Notes

     

    Bankruptcy Court Holds That Secured Creditors Can Be “Crammed Down” With Below-Market Rate Replacement Notes

    The Fourth Circuit Weighs in on Third-Party Releases in Plans of Reorganization

    Analysis Regarding Third-Party Releases in Bankruptcy

    Third Circuit Rules that Failure to Disclose Third-Party Release Proves Fatal

    Cross-Border

    Significant Changes To [Vietnamese] Bankruptcy Procedures

     

     

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    Altered Egos – The Ninth Circuit Weighs in (Again) On Whether Individual Creditors Can Pursue Their Own “Alter Ego” Claims Against a Bankrupt Entity’s Principals

    Monday, October 25th, 2010

    Whenever a troubled business seeks bankruptcy protection, unsecured creditors are often left scrambling to find other sources of recoveries for their claims.

    In addition to individual, contractually negotiated protections such as personal guarantees and letters of credit, alter ego claims against the debtor’s principals can provide such creditors with additional pockets from which to seek payment.  To do so, however, such creditors must often address the objection that they are without standing to pursue such claims, because alter ego claims are often “general” ones, by which all creditors were injured – and from which all creditors are entitled to benefit.  As a result, goes the objection, only the trustee – and not individual creditors – may pursue alter ego claims against the debtor’s principals.

    Map of the United States District Court, North...
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    The idea that alter ego claims may be prosecuted only by the debtor’s bankruptcy trustee on behalf of all creditors has been endorsed by at least one Circuit Court of Appeals:  The 11th Circuit has affirmed as much in Baille Lumber Company, LP v. Thompson, 413 F.3d 1293 (11th Cir. 2005).

    But this view is not universally held.  In fact, the 9th Circuit has long held a contrary view, as has the 8th Circuit.  See Williams v. California 1st Bank, 859 F.2d 664, 667 (9th Cir. 1988) (“[N]o trustee . . . has the power under . . . the [Bankruptcy] Code to assert general causes of action, such as [an] alter ego claim, on behalf of the bankrupt estate’s creditors.”).  See also In re Ozark Restaurant Equipment Co., Inc., 816 F.2d 1222, 1228 (8th Cir. 1987); Estate of Daily v. Title Guar. Escrow Services, Inc., 187 B.R. 837, 842-43 (D. Haw. 1995), aff’d. 81 F.3d 167 (9th Cir. 1996).

    Despite the Ninth Circuit’s guidance, however, several lower courts in California have continued to permit bankruptcy trustees to “glom onto” alter ego claims.  See, e.g., In re Advanced Packaging and Products Co., 2010 WL 234795 (C.D. Cal. 2010) (permitting a trustee in bankruptcy to settle an alter ego claim brought against the bankrupt corporation’s parent entity because the claim was “general” rather than “particularized”).

    Last week – for what appears to be the third time in as many decades – the Ninth Circuit revisited this issue in Ahcom, Ltd. v. Smeding.

    Ahcom‘s facts are relatively straightforward:  Ahcom, a UK-based corporation, contracted for almonds with California-based Nuttery Farms, Inc. (NFI).  After NFI allegedly failed to deliver the almonds, Ahcom commenced arbitration in Europe, then sued in the US to collect on the arbitrator’s award – but not before NFI had filed for bankruptcy protection.  Undeterred, Ahcom directly sued NFI’s non-debtor principals, Hendrik and Lettie Smeding, seeking to pierce NFI’s corporate veil.  The Smedings removed the action to US District Court for the Northern District of California and successfully dismissed the action on the grounds that Ahcom’s alter ego claims were “general” in nature – and, therefore, property of NFI’s bankruptcy estate.

    On appeal, the Ninth Circuit reversed, noting that in California, “there is no such thing as a substantive alter ego claim at all . . . .” (citing Hennessey’s Tavern, Inc. v. Am. Air Filter Co., 251 Cal.Rptr. 859, 863 (Ct. App. 1988)).  The panel then went further to explain that California law on this issue has been misread by bankruptcy courts and by the Bankruptcy Appellate Panel for the Ninth Circuit.

    As a result, “California law does not recognize an alter ego claim or case of action that will allow a corporation and its shareholders to be treated as alter egos for purposes of all the corporation’s debts.  Just because NFI’s trustee could not bring such a claim against the Smedings under California law, there is no reason why Ahcom’s claims against the Smedings could not proceed.”

    A circuit split worthy of resolution by the Supreme Court?  Perhaps.  An alternate means of recovery for unsecured creditors who can allege the right facts?  Most definitely.

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