BCLP Global Restructuring & Insolvency Developments

Main Content

Now That We Found Assets, What Are We Going To Do With Them?

My most recent post surveyed situations in which a debtor might lose assets, or see their value drop to zero, during a bankruptcy case.  This article addresses the opposite circumstance: how might a debtor’s estate gain new assets after a bankruptcy filing?

First, the basics.  In general, the bankruptcy estate consists of “all legal or equitable interests of the debtor in property as of the commencement of the case.”  11 U.S.C. § 541(a)(1).  Two provisions capture certain general categories of assets that materialize post-petition: proceeds, products, offspring, rents, or profits from property of the estate, and interests in property acquired by the estate.  Id. § 541(a)(6), (7).  Thus, a typical Chapter 7 estate does not include post-petition assets, other than the proceeds of property sold by the trustee.  Because a debtor in Chapter 11, 12, or 13 ordinarily continues to generate income, the

Whoomp! (Where’d It Go?): Disappearing Assets in Bankruptcy

August 8, 2021

Categories

In a recent post, I discussed three situations in which a debtor in bankruptcy might find itself dispossessed of assets that appeared to be property of the bankruptcy estate.  This article expands on that general idea and presents a compendium of situations in which creditors or circumstances may deprive a debtor of assets or their value.

  • Adverse possession. Adverse possession is technically an application of the statute of limitations, discussed more generally below. In re Colarusso, 295 B.R. 166, 173 (B.A.P. 1st Cir. 2003).  The expiration of the statutory period to recover possession, as extended by 11 U.S.C. § 108(a), may shift ownership and control of real property from the bankruptcy estate to others.  Reported decisions often arise in the context of a debtor’s efforts to sell property free and clear of the interest of the adverse possessor. See, e.g., In

Other People’s Property in Bankruptcy

July 14, 2021

Categories

Nearly sixty years ago, Justice Hugo Black wrote that the Bankruptcy Act of 1898 “simply does not authorize a trustee to distribute other people’s property among a bankrupt’s creditors.”  Pearlman v. Reliance Ins. Co., 371 U.S. 132, 135-36 (1962).  Though the bankruptcy statutes have been modernized and amended on a number of occasions since, Justice Black’s observation remains true today.[1]

This article summarizes the courts’ approaches to three situations in which a debtor in bankruptcy may be in possession of property that legally or equitably belongs to someone else.  What do the courts do when the third party’s rights arise or are recognized only after a bankruptcy case is underway?  Well, that’s not that simple.

  • Constructive trust.  The Bankruptcy Code’s treatment of express trusts is straightforward:  if the debtor holds “only legal title and not an equitable interest” in an asset, then the
  • A Case for Fewer First Day Motions

    A Case for Fewer First Day Motions

    September 18, 2020

    Authored by: Timothy Bow

    Chapter 11 petitions usually are accompanied by a panoply of first day motions.  A newly-minted chapter 11 debtor needs to be able to—among other things—pay its employees and continue employee benefits in the ordinary course of business, pay certain prepetition claims, satisfy its obligations to taxing authorities, and maintain its insurance and surety bond programs.  Chapter 11 cases often are also accompanied by motions seeking various forms of procedural relief, including joint administration of multi-debtor cases, relief related to consolidation of the debtors’ creditor matrix and noticing, and a motion seeking additional time within which to file schedules and statements.

    Despite the usually large number of first day motions, these motions generally are divided into two buckets:  motions seeking to pay things and motions seeking procedural relief.  It may be then that many of these first day motions are simply extra paper—a small portion of each motion recites a few

    Maximizing the Value of Mediation During the COVID-19 Pandemic and Beyond

    Perhaps the most obvious shift in day-to-day legal practice in the midst of the COVID-19 pandemic is the “new normal” of virtual meetings and court proceedings.  While these can present some degree of challenge, video conferencing mediation instead of face-to-face mediation is perhaps one of the most challenging

    This post sets forth fundamental tips to navigate a virtual mediation – and importantly – provides a reminder that many of the aspects of a successful mediation remain constant even during a time when so much of daily life feels variable.

    Preparation:  Several elements should be considered and discussed when preparing for a mediation session in order to achieve the most successful result.

    • Goals: Consider and understand your goals.  Clients and their counsel often discuss economic goals and alternatives, but should also identify non-economic sources of value.   Sources of non-economic value may open up ways of satisfying opposing parties’ goals.  For

    Part III: Supplier considerations: Assessing and leveraging your leverage

    As most global markets attempt a return to normal (or a new form of normal) business, it is hard to imagine a sector or an industry that isn’t already reeling from the effects of the past three months. Getting back on your feet is hard enough in the current environment, without having to worry about further setbacks impacting your business. But how would you react if your key supplier called tomorrow to let you know that they were insolvent and unable to provide you with goods or services? Worse, what if you had already placed (and paid for) a large order with them that was critical to your ability to continue business?

    In addition to the customer risk mitigation measures we looked at in Part II of this series, management needs to have in place systems and options to avoid the impact of supply-chain risk. Continuously monitoring your supply chain is

    Managing Counter-Party Risk in the Pandemic

    Part II: Customer Considerations: Risk Mitigation = Smarter Sales

    In the coming months, very few companies, whether public or private, will be able to avoid including statements in their quarterly reports or financials that attribute single or double digit percentage declines in revenue to doubtful accounts and insolvencies of major customers caused by the pandemic. For many, if not most, that disclosure will continue beyond Q4 of 2020 and through 2021.

    In prior periods, lenders and other key stakeholders may have been tolerant to these one-off, non-systematic declines due to unanticipated insolvencies of customers (and the ability to replace the revenue/income either through liquidation of collateral or replacement of customers). After all, none of us have a crystal ball, and many of the insolvencies were unforeseen (or unexpected). To the extent they had it, lenders and other creditors didn’t have to worry about being able to liquidate collateral – a market

    Managing Counter-Party Risk in the Pandemic

    Part I: Getting on the Same Page

    Globally, boards and management teams are taking stock of current operations and finances to identify vulnerabilities to the unprecedented distress that markets are anticipating from the pandemic for the next 12-18 months.  As part of those discussions, many retail businesses (and those with operations related to retail, like landlords, logistic companies, shipping interests, etc.) are focusing on receivables and risk weighting as to the collectability and the follow-on impact of doubtful accounts.

    These conversations will inevitably lead to the age-old conflict that pins finance and legal functions – that are largely focused on risk – against business/sales functions, which are generally focused on sales and keeping customers happy.  Pre-pandemic, sales teams historically had a leg up as revenue generation inevitably trumped risk mitigation in the context of strategic decisions.  However, the same behavior and cultures that have been allowed to prevail when there

    Redefining Extraordinary Circumstances in the Wake of COVID-19: Finding Consistency in Difficult Times

    Editor’s Note:  This was originally published in CFO.com on April 21, 2020.

    Humanity has largely embraced the “we are in this together” mentality from a health crisis perspective. Yet, even as world leaders scramble to contain the COVID-19 pandemic, we have yet to fully grasp the follow-on impact from the pandemic and particularly, how it will affect world economies. For this “second phase” of the world’s response to the pandemic, the ultimate question is whether business and financial counter-parties will equally share the risk of loss. Bankruptcy judges have jurisdiction to fashion remedies for parties in their courtroom, but Congress and COVID-19 have left them no choice but to rule on issues immediately in front of them without the ability to limit the impact of their decisions on other market players. With a goal of tempering the COVID-19 related damage, recent difficult decisions in U.S. Bankruptcy

    The attorneys of Bryan Cave Leighton Paisner make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.