California Lawyers Association

Business Law Insolvency Law Committee

Updates from the BLS Insolvency Law Committee

In re Progressive Solutions, Inc., 2020 Bankr. LEXIS 467 (Bankr. C.D. Cal. 2020) (“PSI”) is the first reported opinion addressing the Small Business Reorganization Act of 2019, Pub. L. No. 116-54 (2019) (the “SBRA” or the “Act”). In PSI, Judge Scott Clarkson [] denied a Motion for Order Authorizing Amendment of Chapter 11 Petition to Elect Subchapter V (the “Motion to Amend”) and a related motion to confirm a new plan under the SBRA without prejudice. The basis for the court’s ruling was that re-designation of a Small Business Case to one under Subchapter V is accomplished by amendment of the voluntary petition, and there is no legal requirement to obtain leave of court to amend under Federal Rule of Bankruptcy Procedure 1009 (“FRBP”). Read more
In Freeman v. Nationstar Mortgage LLC (In re Freeman), 608 B.R. 228 (9th Cir. B.A.P. 2019), the United States Bankruptcy Appellate Panel of the Ninth Circuit (“BAP”) reversed in part a bankruptcy court’s denial of a debtor’s motion for contempt sanctions against a creditor who violated the discharge injunction by attempting to foreclose on a void deed of trust. Read more
A stockholder must make a demand on a corporation’s board of directors before initiating a derivative action unless the complaint can allege with particularity that a demand would be futile. Allegations of futility will pass muster when specific facts are alleged showing the existence a disabling conflict affecting a majority of the directors which would have considered a demand. Read more
In re Bello, 2019 WL 6826007 (Bankr. E.D. Mich. Dec. 13, 2019) shows that in applying the unsecured debt limit for Chapter 13 eligibility, a debt may be regarded as both liquidated and unliquidated at the same time. The court in Bello reasoned that if the Debtor admits that he or she owes a certain amount of money to a creditor, the admitted portion of an otherwise disputed debt should be taken into account in applying the debt limit. However persuasive this logic might be, it has not been applied in cases involving involuntary bankruptcy, in which any dispute as to the amount of a debt will disqualify a petitioning creditor. Read more
The Bankruptcy Appellate Panel for the Ninth Circuit recently ruled that a chapter 13 debtor is not required to use post-confirmation proceeds from prepetition assets to pay creditors when the property revests in the debtor after confirmation. Black v. Leavitt (In re Black), 609 B.R. 518, 2019 WL 7344909 (BAP 9th Cir. 2019). Read more
Members of the Insolvency Law Committee specialize in debtor/creditor rights, restructuring and bankruptcy law. The Insolvency Law Committee collaborates in the presentation of educational programs, publications, proposed legislation, comments on legislative proposals and with other members of the BLS on matters of overlapping interest. Read more
A California bankruptcy court has held that a contractual provision authorizing lender to recover default interest at the rate of 4% above the ordinary contract rate was not an unenforceable penalty under California or bankruptcy law. The court also ruled that the default rate was enforceable as a liquidated damages clause. [In re 3MB, LLC, Case No. 18-14663-B-11, 2019 WL 6701420 (Bankr. E.D. Cal. Dec. 5, 2019).] Read more
This program is presented jointly by the Insolvency Law Standing Committee of the Business Law Section of the California Lawyers Association and the San Diego Bankruptcy Forum. Read more
The Fifth Circuit Court of Appeals rejects lower court ruling that a bankruptcy trustee could avoid prepetition transfers and recover their values under 11 U.S.C. section 550(a), when the immediate transferee had returned the funds in question to the debtor prepetition, as such recovery would violate the prohibition against double recovery in Section 550(d). Matter of DeBerry, ___ F.3d ___, 2019 WL 7046904 (5th Cir. 2019). Read more
The Texas Supreme Court, on a certified question from the Fifth Circuit Court of Appeals, determined that a recipient of a fraudulent transfer who was on inquiry notice of the transferor’s fraud must diligently investigate suspicions to prove good faith as part of the good faith and value defense in the Texas Uniform Fraudulent Transfers Act, irrespective of whether the investigation would reveal fraudulent conduct. Janvey v. GMAG, L.L.C., 2019 WL 6972237 (Tex. Sup. Ct. 2019). Read more

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