Ohio Bankruptcy Court Offers Guidance On (The Amended) Ordinary Course Payment Preference Defense

To encourage vendors and other creditors to continue doing business with financially distressed entities, the Bankruptcy Code includes various defenses to litigation brought by a bankruptcy trustee or chapter 11 debtor-in-possession (“DIP”) seeking to avoid pre-bankruptcy payments to such entities. One of these defenses shields from avoidance transfers made to pay debts incurred in the ordinary course of business of the debtor and the transferee. Until lawmakers amended the Bankruptcy Code in 2005 as […]

By | August 5th, 2024 ||

Proposed Legislation Targets “Texas Two-Step” Bankruptcy Tactic

On July 23, 2024, a bipartisan group of senators and representatives introduced the Ending Corporate Bankruptcy Abuse Act of 2024 (the Act). This proposed legislation aims to curtail the use of an increasingly common controversial corporate bankruptcy strategy known as the “Texas Two-Step,” which has been employed by several major companies, including Johnson & Johnson, to address mass tort liabilities.

The Texas Two-Step typically involves a company using a “divisional merger” to split into two entities: One […]

By | August 3rd, 2024 ||

Appellate Courts Skeptical About Bankruptcy Court Sanctions

In his latest article for The Bankruptcy Strategist titled, “Appellate Courts Skeptical About Bankruptcy Court Sanctions,” Schulte Roth & Zabel of counsel Michael L. Cook discusses recent appellate decisions showing a distaste for appeals from bankruptcy court sanction orders. A split Fourth Circuit even refused to hear such an appeal. Other courts tend to limit sanctions or, alternatively, accept a bankruptcy judge’s findings under a stringent “abuse of discretion” standard.

The Fifth Circuit, for example, takes a […]

By | July 27th, 2024 ||