| May 2007 issue: 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 70 East Lake Street, Suite 630 Phone: 312-781-2000 Newsletter design by: |
Sua SponteDeborah K. Ebner I am honored to assume the role as Chair of the Bankruptcy Section of this venerable organization. Under the guidance of Immediate Past Chair Ivan Reich, and the many others before him, this section has served as a proactive voice in the areas of bankruptcy law and creditors rights for decades. Fortunately for me, this strong leadership established a solid foundation for us to build upon as we continue to build. Case Law UpdatePaula Lucas BAPCPA (11 USC 522(o)) effected a change in the near-absolute protection of Texas homesteads. Where a debtor used nonexempt property to purchase a Texas homestead pre-petition, and where the Court found he acted with the intent to hinder, delay or defraud creditors, the homestead is not exempt to the extent that non-exempt funds were used for the purchase. The trustee is entitled to an equitable lien to recover the funds, and the debtor has 120 days to pay the lien or face foreclosure of the lien. Case AnalysisFaye B. Feinstein Omission of "Inc." from Debtor's Name on Financing Statement Renders Creditor Unsecured Summary: The songwriters tell us that "little things mean a lot". In Official Comm. of Unsecured Creditors v. Suna Bros. Inc. (In re Tyringham Holdings, Inc.), 354 B.R. 363 (Bankr. E.D. Va. 2006), the United States Bankruptcy Court for the Eastern District of Virginia held that the absence of the abbreviation "Inc." from the Debtor's name on a UCC-1 financing statement rendered the statement ineffective to perfect a creditor's security interest. The court therefore held that the Debtor's inventory could be sold, and the proceeds thereof received, free and clear of the creditor's asserted lien – in effect, rendering the creditor completely unsecured. NCBJ Sponsorship OpportunitiesThe Commercial Law League of America and its bankruptcy section have sponsorship opportunities available at the National Conference of Bankruptcy Judges ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Sua SponteDeborah K. Ebner I am honored to assume the role as Chair of the Bankruptcy Section of this venerable organization. Under the guidance of Immediate Past Chair Ivan Reich, and the many others before him, this section has served as a proactive voice in the areas of bankruptcy law and creditors rights for decades. Fortunately for me, this strong leadership established a solid foundation for us to build upon as we continue to build. As most of you know, the CLLA was founded in 1895. Now that the League has lived far beyond its 100th birthday, the Bankruptcy Section has grown to not only meet the challenges of the 21st century but has emerged as a nationally recognized organization with a vital role in our courts and in Congress. Our Section Legislative Co-Chairs Peter Califano and Cathy Vance work tirelessly towards the development and implementation of legislation that will lead to a fair equitable and efficient bankruptcy system. Our Amicus Committee including, Bill Schorling, Lou Robin, Ivan Reich and Kathy Weber astutely addresses issues of significant national importance in our courts. As I write this sua sponte, the Amicus Committee is submitting the League’s Amicus Brief in In re: Enron Corporation, and our Legislative Committee is drafting a critical issues paper for submission to Congress. The Amicus brief addresses issues affecting proofs of claim in the post petition claims market, and the critical issues paper addresses concerns about the workings of BAPCPA. As this audience knows, these issues addressed demand our attention during these economically challenging times. The Bankruptcy Section is unique. It consists of a talented group of bankruptcy professionals who can and do make a difference. The section is in strong demand for its nonpartisan seasoned insight into the workings of the bankruptcy system. My goal for this term is to lead this section forward by focusing upon the strengths of our individual members, and in so doing, make a positive difference in the lives of those who depend upon our system for bankruptcy relief. I invite you to join me in this effort. I invite you to join our Section and contribute your talents to improve the system that administers our country’s bankruptcy laws. Please meet us in July in Orlando for our first Strategic Planning Conference. If you prefer to wait until the fall to visit Florida, join us in October for the annual breakfast and education session at the National Conference of Bankruptcy Judges. The Bankruptcy Section’s participation has become an integral part at the NCBJ conference. Of course we will also be in New York in November for the 87th New York meeting of the League. If I do not have the opportunity to say hello to you at any of these conferences, please take a minute to e-mail or telephone me and introduce yourself. Let me now how you would like to get involved in our outstanding organization. Again, my heartfelt thanks to Immediate Past Chair Ivan Reich for a job well done. Ivan, you have made the task before me much easier. I am truly excited about my upcoming term. I look forward to working with all of you, and continuing our heritage of making a positive difference in the field of bankruptcy and creditor rights. Case Law UpdateBAPCPA (11 USC 522(o)) effected a change in the near-absolute protection of Texas homesteads. Where a debtor used nonexempt property to purchase a Texas homestead pre-petition, and where the Court found he acted with the intent to hinder, delay or defraud creditors, the homestead is not exempt to the extent that non-exempt funds were used for the purchase. The trustee is entitled to an equitable lien to recover the funds, and the debtor has 120 days to pay the lien or face foreclosure of the lien. In re. Sissom (Bankr. TX. May 15, 2007) click here for case. The applicable burden of proof in assessing whether a debtor has concealed assets in bad faith is the preponderance of the evidence standard. Gillman v. Ford 2007 U.S. App. LEXIS 11559 (10th Cir. May 17, 2007) Award of attorney fees and costs vacated. Affirmance of bankruptcy court order awarding damages after a determination that plaintiff violated the automatic stay is vacated as to the award of attorney fees and costs, as well as sanctions, where based on the plain text of 11 U.S.C. section 106(a)(3), the award limitations found in section 106(a)(3) are applicable. Florida Dept of Revenue v. Omine 2007 U.S. App. LEXIS 11085 (11th Cir. May 15, 2007). Pre-bankruptcy tax refund constitutes a bankruptcy estate asset Debtors' pre-bankruptcy application of their right to tax refunds to post-bankruptcy tax obligations constitutes an asset that must be turned over to the bankruptcy trustee pursuant to the Bankruptcy Code, 11 U.S.C. section 542 Nichols v. Birdsell 2007 U.S. App. LEXIS 10919 (9th Cir. May 10, 2007). Inaccuracies in attorney/debtor schedules establish intent to make false oath. The court found that the sheer number of inaccuracies in an attorney/debtor's schedules were sufficient to establish the debtor's intent to make a false oath. In re. Hansen (9th Cir. BAP May 17, 2007) click here for case. Preference period delivery not enough for benefit of new value exception. In a preference suit to recover payments made to a company producing specialized equipment for a bankrupt roofing materials manufacturer during the preference period, judgment for the trustee is affirmed where the defendant's delivery of certain components of the equipment line during the preference period was not enough to entitle it to the benefit of the new value exception. In re. Globe Building Materials, Inc. 2006 U.S. App. LEXIS 22846 (7th Cir. May 7, 2007) . A bankruptcy court to consider possible effects on civil litigation when considering reorganization plan. The court found that in considering the feasibility of a plan of reorganization under 11 U.S.C. section 1129(a)(11) it must evaluate the possible effect of a debtor's ongoing civil case with a potential creditor, whether that litigation is pending at the trial level or on appeal. Also, under limited circumstances, a bankruptcy court may exercise its equitable powers to grant retroactive approval of a post-petition financing transaction pursuant to 11 U.S.C. section 364(c)(2). In re. Harbin 2007 U.S. App. LEXIS 9379 (9th Cir. April 26, 2007). Debtor’s proposal to surrender personal property invalid under 11 U.S. C. section 1328 (a)(5)(C). Reversal of bankruptcy court's order granting debtors' bankruptcy petition and confirming their plan of reorganization under Chapter 13 is affirmed as the debtors' proposal to surrender personal property that the IRS cannot levy on and cannot otherwise collect without resort to litigation does not constitute a "surrender" under 11 U.S.C. section 1325(a)(5)(C). IRS v. White click here for case (4th Cir. April 23, 2007) . Stamp-tax exemption does not apply to pre-confirmation asset sales. The district court's affirmance of bankruptcy court's decision granting stamp-tax exemption on the sale of assets is affirmed over claim that the district court erred in holding that the 11 U.S.C. section 1146(c) stamp-tax exemption may apply to pre-confirmation asset sales. In re. Piccadilly Cafeterias, Inc. v. State of Florida Department of Revenue (11th Cir. April 19, 2007) . Paula Lucas Case AnalysisFaye B. Feinstein Omission of "Inc." from Debtor's Name on Financing Statement Renders Creditor Unsecured Summary: The songwriters tell us that "little things mean a lot". In Official Comm. of Unsecured Creditors v. Suna Bros. Inc. (In re Tyringham Holdings, Inc.), 354 B.R. 363 (Bankr. E.D. Va. 2006), the United States Bankruptcy Court for the Eastern District of Virginia held that the absence of the abbreviation "Inc." from the Debtor's name on a UCC-1 financing statement rendered the statement ineffective to perfect a creditor's security interest. The court therefore held that the Debtor's inventory could be sold, and the proceeds thereof received, free and clear of the creditor's asserted lien – in effect, rendering the creditor completely unsecured. Background and Holding: Tyringham Holdings, Inc. ("Debtor"), a Virginia corporation, sold jewelry from five retail stores. Pursuant to a prepetition consignment agreement, Suna Bros. Inc. ("Suna") consigned to Debtor for sale 65 pieces of jewelry, worth almost $311,000. To perfect its security interest in the consigned property, Suna filed a UCC-1 financing statement with the correct state agency, the Virginia State Corporation Commission (the "Virginia Filing Office"). (Under the current version of Article 9 of the Uniform Commercial Code ("UCC 9"), which has been in effect in all states since early 2002, a consignor's interest in consigned goods is the equivalent of a purchase money security interest in inventory and must be perfected by filing a financing statement.) The Debtor's name, as contained in Virginia's public corporation records, was "Tyringham Holdings, Inc." However, Suna's financing statement listed the Debtor's name as "Tyringham Holdings" – omitting the "Inc." After filing its chapter 11 case, Debtor obtained a bankruptcy court order authorizing the sale of its assets, including its inventory. Although the opinion is a bit vague on the procedural details, a review of the docket in the Debtor's case fills in the gaps: Suna's consigned inventory was expressly excluded from the sale order, pending further order of the court. To obtain that order, the Creditors' Committee filed an adversary proceeding against Suna, seeking a declaration that Suna's security interest was unperfected. The Committee asserted in its complaint that the Debtor could sell Suna's alleged collateral, and receive the proceeds thereof, free and clear of any lien of Suna – based, it appears, upon 11 U.S.C. §544, which provides that a lien that is unperfected on the date a bankruptcy case is commenced may be avoided – i.e., nullified – with the formerly-secured creditor then being treated as entirely unsecured. Therefore, the issue in the case was whether the financing statement filed by Suna in the Virginia Filing Office was sufficient to give it a perfected security interest in the consigned inventory as of the commencement of the Debtor's bankruptcy case. Revised UCC 9 provides specific guidance regarding the effectiveness of financing statements that contain errors. The route through the statute is as follows:
Suna presented evidence that it had conducted numerous searches, using private search companies, all of which revealed its erroneous filing. However, none of those searches combined the Debtor's full name (including the "Inc.") with the standard search logic of the Virginia filing office, which search logic treated "Inc." as a significant element of a name, whose presence or absence could not be ignored. When just such a search was performed by the Virginia Filing Office, the search did not reveal Suna's erroneous financing statement. The bankruptcy court therefore held that the failure to include "Inc." in the Debtor's name rendered Suna's financing statement "seriously misleading" within the meaning of UCC §9-506(b). Suna was, therefore, unperfected as of the commencement of the Debtor's bankruptcy case, and it lost its lien rights against the consigned inventory. Practice Pointer: Although the result in Tyringham Holdings may seem unduly harsh compared to Suna's mistake, that result was inevitable, given the statutory scheme and the uncontestable fact that the only search that matters under UCC §9-506(c) – a search under the Debtor's correct name, using the standard search logic of the relevant filing office – came up empty for Suna. The result is also easy to avoid and highlights the wisdom of post-closing due diligence. Before making a loan or providing other value to a debtor, creditors are well-advised to use private search firms to try to turn up all extant UCC filings, tax liens, judgments, and similar items. However, after the creditor files a financing statement to perfect its interest in collateral, it may be prudent to obtain a certified search for that single filing from the filing office itself, in order to ensure that "little things" – like the omission of "Inc.", or of "Co.", or of the periods in an abbreviation – don't mean a lot of pain for the creditor. THE PATRON FUND PROVIDES SERVICES TO BANKRUPTCY SECTION MEMBERS Cathy S. Pike A financial grant program, which is administered by the Patron Fund Board,
has for over forty
years allowed the League and its Sections to provide programs and other member
services that
might otherwise not have been possible. In addition, the Patron Fund pays the
retainer for
League Counsel, and regularly subsidizes CLLA lobbying efforts.
Patron Fund support helps pay the League’s share of the costs of publishing
the DePaul Business
In 2002, a $25,000 grant was made directly to the Bankruptcy Section to reimburse it for the time and financial expense incurred during the previous five years of working with the National Bankruptcy Review Commission. Grants also partially paid for a legislative writer to assist the Bankruptcy Section. In recent weeks, the League has been requested to provide a white paper to the Federal Trade Commission. The Patron Fund has joined with the Creditors’ Rights Section to pay the costs of preparing that paper. In addition, funds have been pledged to establish an Assignment for the Benefit of Creditors Commission. The Patron Fund exists as a result of the generous contributions of League Patrons. Annual Patron due are $150.00. To become a League Patron, and join in supporting this essential service to the League and the Bankruptcy Section, please go to www.clla.org and click on the Patron Fund icon. NCBJ Sponsorship opportunitiesThe Commercial Law League of America and its bankruptcy section have sponsorship opportunities available at the National Conference of Bankruptcy Judges:
|