| January 2007 issue: Washington Hot News Private Tax Collections Still an Issue According to Taxpayer Advocate Nina Olson, private debt collectors may have a place in collecting delinquent tax debts... Your Name Here! The Bankruptcy Section is looking for volunteers to write a Case Analysis for an upcoming addition. The Case Analysis is typically based on Court of Appeals or Supreme Court decisions, although you can use your discretion to discuss relevant BAP, District Court and Bankruptcy Court decisions -- especially those interpreting BAPCPA's amendments to the Code. If you are interested or would like to learn more, please send an email to the Managing Editor. You can view the archive here. Your subscription You have been subscribed to this list as part of your membership in the Bankruptcy Section of the Commercial Law League of America. CLLA 205 N. Michigan, Suite 2212, Phone: 312-240-1400 Newsletter design by: |
Sua SponteIvan J. Reich The new year is upon us, and the political winds are changing in Congress (at least for the next two years). With that comes a renewed opportunity to revisit, revamp and even repeal some of the changes made to Bankruptcy Code in the last Congress. Case AnalysisKaren J. Porter Summary: Cross your t’s and dot your dissolutions: issues and problems with single member LLC’s. In re Midpoint Development, LLC., 466 F.3rd. 1201 (10th Cir. 2006) involves a single member LLC that was determined to be ineligible for a chapter 11 case because the LLC filed articles of dissolution before the case was filed. A-Z Electronics, LLC 350 B.R. 886 (Bankr. D. Idaho 2006) involves the dismissal of a chapter 11 case because the managing member was a debtor in a chapter 7 case and the chapter 7 trustee, not the debtor, controlled the governance of the LLC. Case Law UpdatePaula Lucas Timing of 503(b)(9) claim payments is within court discretion. Consideration of claims should be considered in light of 3 factors: (1) prejudice to the debtors, (2) hardship to claimant, and (3) potential detriment to other creditors. The court found that where immediate payment of an administrative expense claim would be a hindrance to a debtor's continuing operations, but a delay in payment would not effect claimant survival, the court may grant a delay in payment to go into effect after plan confirmation. In re. Global Home Products, LLC (Bank. DE) (click here for actual case) 77th Chicago MeetingJoin the Bankruptcy Section at the CLLA Annual Breakfast and Education Programming Preview - NCBJ 2007We are delighted to feature Dave Barry as our breakfast speaker at the 2007 19th Annual CLLA Breakfast Dave Barry is a humor columnist. For 25 years he was a syndicated columnist whose work appeared in more than 500 newspapers, including the Miami Herald (since 1983) in the United States and abroad. In 1988 he won the Pulitzer Prize for Commentary specifically for his columns in the category of Distinguished Social Commentary. Many people are still trying to figure out how this happened. He writes about issues ranging from the international economy to exploding toilets. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Sua SponteThe new year is upon us, and the political winds are changing in Congress (at least for the next two years). With that comes a renewed opportunity to revisit, revamp and even repeal some of the changes made to Bankruptcy Code in the last Congress. Our section’s legislative committee recently sent out a call to our members for comments, suggestions and contributions to our position paper on technical corrections to the BACCPA. We thank you for your imput and we will be meeting as an executive counsel shortly to discuss and implement your suggestions in our legislative agenda and postion paper. We heard from many of our constitutuent group of members, but one group whose thoughts I found particularly relevant are those from our sitting bankruptcy judges themselves. On January 17, 2007, I attended a meeting of the Florida Bar’s Bankruptcy Judicial Liason Committee in Miami. At the meeting, Bankruptcy Judge Lewis Killian of the Northern District of Florida cited to and applauded our section’s efforts in soliciting imput to seek changes to BACCPA through technical corrections and substantive change. Many judges at the meeting cited to two issues of particular concern, one substantive and one administrative. BACCPA Credit Counseling Requirements It was the uniform opinion of judges at that meeting that BACCPA’s pre-filing credit counseling requirement is useless and has had no practical positive effect, and that by forcing debtors who have not received this pre-petition counseling’s cases to be dismissed, has just created further administrative hassles for the court and run up the costs of bankruptcy cases, with no practical benefit being gained by the debtors. The consensus among the judges is that BAPCPA's credit counseling requirement is an unnecessary hindrance to individuals filing chapter 7 cases. The appropriate time for counseling is before an individual applies for a credit card or car loan. It would be much more effective to inform individuals about late fees, interest on unpaid balances and default rates of interest at the time of the transaction rather than requiring credit counseling after individuals incur unmanageable debt. Most debtors' attorneys will tell you that credit counseling has no effect on the decision to file a bankruptcy petition. Under the current version of BAPCPA, courts are required to dismiss cases of debtors who fail to obtain prepetition credit counseling. Unfortunately, it is the uninformed debtors - those in the greatest need of bankruptcy protection - who fail to obtain the required prepetition credit counseling. The debtor whose case is so dismissed is then at a great disadvantage if he or she files again because of section 362(c). At the very least, an amendment to weaken the requirements of 362(c), or one that permits the waiver of the prepetition counseling requirement would be very desirable. I believe we as a section should support and lobby for such changes to the credit counseling requirements of BACCPA. Bankruptcy Court’s Budget and Appropriations The judges at that meeting, along with the clerk of our local bankruptcy court, also cited to another issue weakening the effectiveness of the bankruptcy system and making the system less effective and more costly. That is the actual decrease in the federal budget and appropriations for the operations of the fededral bankruptcy courts. Despite BACCPA, bankruptcy filings are beginning to approach pre-BACCPA levels again. BACCPA itself has imposed additional levels of bureacracy, reporting and administrative functions for the courts, while at the same time the federal bankruptcy system is moving to a wholesale implementation of Electronic Case Filing (“ECF”). It is in the best interest of all our members and society as a whole that our section support and lobby for an increased budget and appropriations for the operations and administration of our federal bankruptcy system. Pay Raises Another issue that is equally effecting the adminstration of justice is not
as obvious but equally as important, and that is the issue of pay increases
for federal judges. Federal judges have had no increase in salary since 1993.
When Congress has provided a cost of living increase for other federal employees,
judges receive a smaller increase, so that even they have not even kept up
with the rest of the federal staff. Chief Justice Robert's 2006 annual
report to Congress highlights the fact that there is a significant diminution
in spending power faced by federal judges, the threat to judicial independence
that results, and the loss to the bench of experienced judges who can earn
significantly more in other disciplines than by remaining on the bench. In
fact, first year associates in major law firms, often earn more in their first
year than any federal judge earns after years of experience as a practicing
attorney and then on the bench. Attorney General Gonzales has also added
his voice in support of the need for a pay raise. I am proud that the
Bankruptcy Section voted overwhelmingly to have the CLLA issue a statement
in support of the judiciary's effort to obtain a substantial pay increase. Besides education and cocktail parties, our annual section elections will now be held for the first time in Chicago. I want to encourage each of you to consider running for office as a member of the bankruptcy section executive council. It is a wonderful opportunity to steer the course of our section, become involved with shaping changes in bankruptcy law through our lobbying and amicus writing efforts, and participate in the issues facing bankruptcy practitioners around the country. Please email either myself at Ireich@becker-poliakoff.com, or our Chair Elect Deb Ebner at dkebner@aol.com if you are interested in running for council or as an officer of the section. See you in Chicago. Ivan Ivan J. Reich Case AnalysisKaren J. Porter
Summary: Cross your t’s and dot your dissolutions: issues and problems with single member LLC’s. In re Midpoint Development, LLC., 466 F.3rd. 1201 (10th Cir. 2006) involves a single member LLC that was determined to be ineligible for a chapter 11 case because the LLC filed articles of dissolution before the case was filed. A-Z Electronics, LLC 350 B.R. 886 (Bankr. D. Idaho 2006) involves the dismissal of a chapter 11 case because the managing member was a debtor in a chapter 7 case and the chapter 7 trustee, not the debtor, controlled the governance of the LLC. Discussion: In, In re Midpoint Development, LLC., 466 F.3rd. 1201 (10th Cir. 2006), Midpoint filed Articles of Dissolution with the Oklahoma Secretary of State on November 14, 2003. On the same day Midpoint filed a petition in the District Court for Oklahoma County to appoint a receiver to complete the winding up of its affairs. Seven months later, Midpoint filed a chapter 11 petition. A review of the schedules indicated Midpoint had less than 15 creditors, no personal property and vacant land located in Palm Beach, Florida and Oklahoma County valued at 1.2 million. Midpoint had two secured creditors that were banks with claims of $900,000.00 against the real estate. The Midpoint case was filed simultaneously with a bankruptcy case for the single member manager of the LLC and five affiliated corporations. Two individual creditors joined together and moved to dismiss the Midpoint case raising the issue of the prior dissolution of the LLC. The bankruptcy court denied the motion to dismiss and found that an LLC is empowered to wind up its affairs after dissolution, including filing a bankruptcy case. The district court concluded that the LLC ceased to legally exist after the effective date of the articles of dissolution and reversed the bankruptcy court. Midpoint argued unsuccessfully that an Oklahoma LLC maintains a legal existence during dissolution which involves the three step process of an act of dissolution; filing articles of dissolution and a winding up period. The Tenth Circuit agreed with the district court and upheld the dismissal of the case. The Tenth Circuit based its analysis on the Oklahoma Limited Liability Company statute which provided upon the effective date of the articles of dissolution, the articles of organization of the LLC are cancelled. In the Midpoint case, the articles of dissolution were effective the date they were filed. The court concluded that there was nothing in the Oklahoma statutory scheme for LLC’s to suggest that an LLC continues to exist and has an unspecified time to wind up its affairs after the filing of articles of dissolution. To the contrary, the Oklahoma statutes, when read together, caused the court to conclude that dissolution and the winding up period should take place before the articles of dissolution are filed and the LLC’s legal existence terminates. Midpoint should have wound up its affairs before filing articles of dissolution with an immediate effective date. In A-Z Electronics, LLC 350 B.R. 886 (Bankr. D. Idaho 2006), the single member of an LLC filed a joint chapter 7 case with his wife. Before the chapter 7 trustee had completed the administration of the chapter 7 case, the single member filed a chapter 11 case for the LLC. He signed the chapter 11 petition as the “managing member”. The US Trustee filed a motion to dismiss the case arguing the Debtor was ineligible to file a chapter 11 case because the managing member had no authority to file the case. The bankruptcy court agreed and dismissed the case. The bankruptcy court found the question of whether or not the person signing the petition has authority is determined by substantive state law. The Idaho statute places management and decision making authority in the hands of the members unless an operating agreement provides otherwise. The court was not provided with an operating agreement and expressed doubt that one existed. The court found under Idaho law a debtor member’s interest in an LLC is personal property that becomes property of the estate upon filing a bankruptcy case. The debtor’s chapter 7case was still pending at the time the chapter 11 case was filed and the trustee had not abandoned her interest in the LLC. The court found the chapter 7 trustee became the sole member of the LLC when the debtor commenced the chapter 7case and the trustee controlled all governance, including decisions regarding liquidation of the entity’s assets. Therefore, the chapter 11 petition was not properly authorized and the case must be dismissed. Comment: The Midpoint case highlights the need for careful planning when dissolving an LLC. The effect of filing articles of dissolution may vary from state to state. However, exercising the right to dissolve the entity under state law may effectively be a choice of forum if a chapter 11 case is no longer available. The issue may be a worthwhile one for creditors to consider raising as well. Obtaining a dismissal for lack of eligibility may be an alternative to a bad faith filing argument or a motion for relief from the stay. The A-Z Electronic case should be considered before filing a chapter 7 for the owner of a single member LLC that seeks to discharge personal debts and continue to own and operate the LLC. A motion to abandon the trustee’s interest should be brought promptly if the LLC has no significant value. If the LLC, or its assets, have significant value, the single member may be required to file a chapter 13 case to prevent the trustee from gaining the right to control the LLC. Case Law UpdateTiming of 503(b)(9) claim payments is within court discretion. Consideration of claims should be considered in light of 3 factors: (1) prejudice to the debtors, (2) hardship to claimant, and (3) potential detriment to other creditors. The court found that where immediate payment of an administrative expense claim would be a hindrance to a debtor's continuing operations, but a delay in payment would not effect claimant survival, the court may grant a delay in payment to go into effect after plan confirmation. In re. Global Home Products, LLC (Bank. DE) (CLICK HERE FOR ACTUAL CASE) Parents and children liable for bankruptcy estate debt repayment. The court affirmed lower court order holding parents and children jointly and severally liable to repay money to the parents' bankruptcy estate. The trustee sought to set aside fraudulent conveyances from custodial accounts set up for the two children. The court found there to have been no clear error in deciding the custodian of the accounts to be entity benefiting from the initial transfer, as the funds were used for personal benefit. The court did however modify the judgment holding that the children are not personally liable and that their obligation only extends to the amount of the funds originally placed in the custodial account. Boyer v. Belavilas 2007 U.S. App. LEXIS 169 (7th Cir. January 05, 2007) Exception to 547(b) via 547(c), not grounds for avoidance. Refusal to set aside a mortgage in a bankruptcy proceeding is vacated and remanded where: 1) there was a preferential transfer under 11 U.S.C. section 547(b) and 2) the transferred mortgage was not rescued from avoidance by any exception to section 547(b) provided by section 547(c). In Re: Christine H. Lazarus, 2007 U.S. App. LEXIS 388 (1st Cir. January 09, 2007) Use of "strong-arm" provision allowed by trustee is allowed. Court affirmed finding that a trustees allowance of “strong-arm” provision against an unrecorded, unperfected security interest in the assets of a chapter 11 debtor's assets. This based upon several factors: First the appellant argued that sections 547(c) and (e) are exceptions to section 544(b)'s avoidance provisions was foreclosed, as sections 547(c) and (e) do not constitute "generally applicable [relation-back] law.” Second the court properly rejected appellant's argument that the involuntary chapter 11 case did not "commence" until after an order for relief was entered. Finally, that the appellants' lack of diligence in recording its interest precluded it from equitable relief. In Re: Millivision, Inc., 2007 U.S. App. LEXIS 873 (1st Cir. January 16, 2007) Excusable neglect proper grounds to deny extension. Denial of motion to extend time to file notice of appeal in bankruptcy case is affirmed. The court found the time limit within which a cross appeal is to be filed, must be enforced when invoked by an adverse party. Under the strict standard governing "excusable neglect," the district court acted within its discretion in denying the motion for an extension of time to appeal. In re. Johns-Manville Corp. 2007 U.S. App. LEXIS 925 (2d Cir. January 17, 2007) Dual motions to modify Chapter 13 plan; one confirmed, one denied. The court found there to be varying circumstances governing dual modification motions. In the first case, post confirmation, the debtors residence had appreciated in value, this however was offset by a reduction in the debtors earned income. The court therefore found the doctrine of res judicata to have barred modification of the confirmed plan. In the second case the debtor had undercone a substantial, unanticipated change in post-confirmation condition thus res judicata was not found to be a bar to plan modification. Murphy v. O'Donnell 2007 U.S. App. LEXIS 1018 (4th Cir. January 18, 2007) 506 Post Petition Fees Not Granted On Appeal Not Arguable on Remand. Where a secured statutory lien creditor is not granted post-petition attorney fees, caTexas case law bars that creditor from bringing the claim on remand. The case law indicates that the fees (an unsecured claim) have been waived by the initial judgment. In re. Enre. L.P. (Bankr S.D. TX) (CLICK HERE FOR ACTUAL CASE) Rule 8009 triggered at time appeal is docketed and all parties noticed. The lower court’s dismissal of an appeal based upon failed to comply with Rule 8009’s 15 day time limit for the filing of an appellant brief is reversed. The court found the rule to be triggered and thus complied with not by merely the docketing of the appeal. The time limit is also to include the notice of all parties. In Re: Enron Corp. 2007 U.S. App. LEXIS 1942 (2d Cir. January 29, 2007) Paula Lucas
77th Chicago MeetingJoin the Bankruptcy Section at the Featuring: Section Elections 2007 DePaul Symposium The Enron and WorldCom scandals rattled the corporate world, shaking the faith of investors and the public. Was the legislative cure worse than the disease? Our panel will explore this question and discuss the consequences – both intended and unintended – of Sarbanes-Oxley. Luncheon Program (sponsored by DSI) In the Zone: Fiduciary Duties and the Slide Towards Insolvency The law remains unsettled as to whether directors and officers owe fiduciary duties to creditors. Assuming some duty is owed, what specific actions do directors and officers undertake? Our panel will enter the fray - discussing conflicts in pertinent case law while debating recent court decisions and the impact these decisions will have on future corporate governance. Here and Now: Trends in the D&O World This session promises a lively discussion regarding the current legal issues facing directors and officers in the corporate world today. 77th Chicago Meeting Various courts have taken conflicting positions on substantive and procedural issues that influence bankruptcy planning and venue selection. Disparate treatment of property rights and legal positions can complicate the legal analysis for the bench and the bankruptcy bar. These “splits among the circuits” can also create strategic opportunities and cultivate innovative advocacy for various parties. The panel will attempt to:
Speakers:
Moderator:
1:30 p.m. – 3:30 p.m. Most lawyers are generally familiar with the nature of consensual security interests created under Article 9 of the UCC. What about the problems associated?
Conflicting liens are not always immediately apparent from the public records used to determine the perfection and priority of a security interest. Panelists will examine the various legal issues confronting secured creditors competing for priority in the assertion of lien rights and security interests in personal property under the UCC and other state and federal laws. Speakers:
Co-Sponsored by the Creditors’ Rights Section Saturday April 21st Involuntary bankruptcy relief is a creditor’s remedy that has fallen in and out of favor as a means of ensuring that a debtor’s assets are fully and fairly administered for the benefit of creditors. Recent statutory amendments under BAPCPA and case law interpretation of the bankruptcy code provisions governing involuntary bankruptcies add new levels of complexity to an area fraught with risk and potential liability for the unwary. This program will focus on the elements of the involuntary bankruptcy proceedings and analyze the various strategic considerations for both creditors and alleged debtors. Speakers:
For pricing, registration and more information please go to www.clla.org or call the CLLA office at (800)978.CLLA
CLLA Annual Breakfast and Education Programming Preview - NCBJ 2007We are delighted to feature Dave Barry as our breakfast speaker at the 2007 19th Annual CLLA Breakfast Dave Barry is a humor columnist. For 25 years he was a syndicated columnist whose work appeared in more than 500 newspapers, including the Miami Herald (since 1983) in the United States and abroad. In 1988 he won the Pulitzer Prize for Commentary specifically for his columns in the category of Distinguished Social Commentary. Many people are still trying to figure out how this happened. He writes about issues ranging from the international economy to exploding toilets. Taking prosaic ideas to incongruous extremes, he writes things like: "With the federal deficit running at several hundred billion dollars per year, Congress passed a transportation bill that, according to news reports, includes $30 million for a 'hightech' moving sidewalk in Altoona, which happens to be in the district of Rep. 'Bud' Shuster, the ranking Republican on the surface transportation subcommittee. The Pulitzer Prize judges gave Barry the award for commentary in 1988 "for his consistently effective use of humor as a device for presenting fresh insights into serious concerns." 22nd Annual Educational Program Preemption and Federalism Issues in Bankruptcy Panelists:
Statutory Construction and Section 105 Uses (and Misuses) Panelists:
Constitutional Issues Posed by BAPCPA Panelists:
Sponsorship Opportunities are available. Please call the CLLA office for more information. 800.978.CLLA. Your membershipNOTE: If you have not paid your section dues this will be the final newsletter you will receive. The Section thrives by its membership. Dues are $80 per calendar year. With that not only do you receive monthly newsletters but you are also provided an opportunity to have your voice heard. Whether actively participating in legislative initiatives, providing assistance in amicus efforts, or adding your voice to position papers, the section needs members like you. The section affords its members speaking, writing, and lobbying opportunities for individuals and their firms. The Section is known for hosting excellent, up-to-the-minute education. Just three days after BAPCPA passed in April 2005, the Section threw together a “wow”-worthy program at our annual Chicago Meeting—the first educational seminar offered anywhere on the new legislation. The Section informs members of late breaking cases and items of importance to their practice through the Bankruptcy Section Practice Alert. The Section encourages and fosters an atmosphere that allows members a chance for active participation and involvement in issues that matter to them. And of course your membership entitles you to a bevy of networking opportunities, both professional and personal, including the Section cocktail parties (April 20th, 530-630 p.m.). Please call the CLLA office 800.978.CLLA or click here to renew today! |