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The Delaware Bankruptcy Insider is a premier blog designed to bring its readers a comprehensive analysis of the latest Delaware corporate bankruptcy news and rulings.  Brought to you by Ashby & Geddes, P.A.

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Commencing an Involuntary Just Got Riskier – Petitioning Creditors May Face State Law Damages in Addition to Those Under Bankruptcy Code Section 303(i)

Rosenberg v. DVI Receivables XVII, LLC, No. 15-2622, 2016 WL 4501675 (3d Cir. Aug. 29, 2016)

In this federal preemption Opinion, the Third Circuit Court of Appeals held that section 303(i) of the Bankruptcy Code does not preempt state law claims by non-debtors for damages based on the filing of an involuntary bankruptcy petition.  The Court did not, however, opine on whether section 303(i) preempts state law claims brought by debtors.

The appeal originated from a 2008 involuntary bankruptcy proceeding commenced against Maury Rosenberg and his affiliated businesses.  The petition was dismissed and Mr. Rosenberg recovered fees, costs, and $6 million… Read More

Insider’s Scoop: Judge Sontchi’s Decision to Confirm Horsehead’s Plan Was One of His Honor’s Most Difficult and Closest Calls in Ten Years on the Bench

In re Horsehead Holding Corp., No. 16-10287 (CSS) (Bankr. D. Del. Sept. 2, 2016)

Following a three day confirmation trial, which attracted scores of shareholders and running commentary via live tweets from the courtroom, Judge Sontchi confirmed the second amended plan of reorganization (the “Plan”) proposed by Horsehead Holding Corp. and its affiliated debtors (“Horsehead”) over the objection of the official committee of equity holders (the “Equity Committee”), holding that the Plan was proposed in good faith and satisfied the absolute priority rule.  His Honor described the decision as one of the most difficult and closest calls… Read More

Delaware Bankruptcy Court Holds Section 546(e) Safe Harbor Does Not Bar a Litigation Trust, as a Creditor-Assignee, From Asserting State Law Constructive Fraudulent Transfer Claims

PAH Litig. Trust v. Water Street Healthcare Partners, L.P. (In re Physiotherapy Holdings, Inc.), No. 15-51238 (KG), 2016 WL 3611831 (Bankr. D. Del. June 20, 2016)

In rendering this Opinion and permitting a post-confirmation trust to pursue state law constructive fraudulent transfer claims against two former shareholders of debtor Physiotherapy Holdings, Inc. (“Physiotherapy”), the Honorable Kevin Gross of the Delaware Bankruptcy Court eschewed the recent holding of the Court of Appeals for the Second Circuit that section 546(e) of the Bankruptcy Code preempts not only state law fraudulent transfer claims brought by trustees in bankruptcy, but also those brought… Read More

Delaware District Court’s Amended Local Rules Become Effective August 1, 2016

On August 1, 2016, the newly amended Local Rules of Civil Practice and Procedure of the United States District Court for the District of Delaware will go into effect.  Of particular importance to bankruptcy practitioners, the Delaware District Court has made it clear through the local rule amendments that bankruptcy appeals are not subject to Local Rules 7.1.2 (setting forth, among other things, the timetable for motion practice), 7.1.3 (prescribing the form and contents of briefing and appendices filed with the Delaware District Court), 7.1.4 (governing oral argument), and 7.1.5 (governing reargument requests).  Rather those subject areas are governed… Read More

Unsecured Creditor Not Entitled to Postpetition Attorney’s Fees Provided For Under Enforceable Prepetition Contract

In re Tribune Media Co., No. 08-13141 (KJC), 2015 WL 7307305 (Bankr. D. Del. Nov. 19, 2015)

This Memorandum from the Honorable Kevin J. Carey of the Delaware Bankruptcy Court arose from a dispute over a $30 million unsecured claim for postpetition attorney’s fees and costs (the “Fee Claim”) submitted by an indenture trustee (the “Indenture Trustee”) for certain unsecured subordinated securities issued prepetition by debtor Tribune Company.  According to the Indenture Trustee, its Fee Claim should be allowed under the express terms of the governing indenture as well as the United States Supreme Court decision Travelers Casualty & Surety Company… Read More

New Delaware Bankruptcy Court Ombudsman Announced

At the first Bench and Bar meeting held for the 2015-2016 year, Chief Judge Shannon announced that Jeremy Ryan, a partner practicing with the restructuring, bankruptcy, and creditors’ rights group of the Delaware law firm of Potter Anderson & Corroon LLP, has been selected by the Delaware Bankruptcy Court as its ombudsman.  Practitioners are encouraged to first contact the Court with questions and concerns regarding a particular matter, but should feel free to contact Mr. Ryan as well.  Mr. Ryan’s contact information may be found here.

Prepetition Claim of Third Party Service Provider for Fringe Benefits Provided to Debtors’ Employees Entitled to Priority Treatment Under Section 507(a)(5) of the Bankruptcy Code

In re Tropicana Entm’t, LLC, No. 08-10856 (KJC), 2015 WL 6112064 (Bankr. D. Del. Oct. 14, 2015)

In a recent post-confirmation dispute arising in the chapter 11 bankruptcy cases of Tropicana Entertainment, LLC and its related entities (collectively, the “Debtors”), the Honorable Kevin J. Carey was faced with a question over which courts are split—whether a prepetition claim asserted by a third party service provider of employee benefits is entitled to priority under section 507(a)(5) of the Bankruptcy Code.  The answer of the Delaware Bankruptcy Court was yes, such a claim may receive priority treatment pursuant to such section… Read More

On the Eve of the EFH Confirmation Hearing, Bankruptcy Court Issues Opinion on Unsecured Noteholders’ Entitlement to Post-Petition Interest

In re Energy Future Holdings Corp., No. 14-10979, 2015 WL 6660787 (Bankr. D. Del. Oct. 30, 2015)

On the eve of the multi-week confirmation hearing scheduled in the chapter 11 cases of Energy Future Holdings Corp., Judge Sontchi of Delaware’s Bankruptcy Court issued several significant decisions, one of which—analyzed here—rules on whether unsecured creditors are entitled to receive post-petition interest on their claims under four sections of the Bankruptcy Code—section 502(b)(2), section 1129(a)(7) (“Best Interests Test”), section 1129(b) (“Cramdown”), and section 1124(1) (“Unimpairment”).*  First, as a threshold matter, the Court held that an allowable portion of an unsecured claim… Read More

Third Circuit Holds That Bad Faith Determined by the Totality of the Circumstances Provides an Independent Basis for Dismissing an Involuntary Petition

In re Forever Green Athletic Fields, Inc., No. 14-3906, 2015 WL 6080665 (3d Cir. Oct. 16, 2015)

Despite no dispute that the petitioning creditors satisfied the statutory requirements for commencing an involuntary chapter 7 proceeding under section 303(b)(1) of the Bankruptcy Code and that the putative debtor was not paying its debts as they came due, this precedential Opinion of the Third Circuit Court of Appeals adopted the “totality of the circumstances” standard for determining bad faith under section 303 and affirmed the decisions of the lower courts that dismissed the proceeding as a bad faith filing.

In ruling so,… Read More

Who Has Standing to Raise a Potential Conflict of Interest and an Objection to a Firm’s Retention?

Hofmeister v. Official Comm. of Unsecured Creditors (In re Revstone Indus., LLC), No. 13-565 (SLR), 2015 WL 5618890 (D. Del. Sept. 24, 2015)

In this Delaware District Court Memorandum affirming the decision of the Delaware Bankruptcy Court to permit the retention of counsel (“Committee Counsel”) to the Revstone debtors’ official committee of unsecured creditors (the “Committee”), the Court addressed who may object to a retention application and press an asserted conflict of interest.  In Hofmeister, Mr. Hofmeister, former founder and insider of Revstone, objected to the retention of Committee Counsel, asserting that counsel had a conflict of interest because it… Read More