Business Restructuring Review | Vol. 20, No. 6 | November–December 2021

In This Issue:

New York Bankruptcy Court Rules that Good Faith Is Not the Gatekeeper to Chapter 15

In In re Culligan Ltd., 2021 WL 2787926 (Bankr. S.D.N.Y. July 2, 2021), the U.S. Bankruptcy Court for the Southern District of New York court granted recognition under chapter 15 to the liquidation proceeding of a Bermuda company despite allegations that the company's court-appointed liquidators filed the chapter 15 petition solely to enjoin shareholder litigation pending in a New York State court. According to the court, although the Bankruptcy Code gives a U.S. court the discretion to deny any chapter 15 relief that is "manifestly contrary" to U.S. public policy, "this exception is not met by a simple finding that the Chapter 15 Petition has been filed as a litigation tactic." [read more …]

Second Circuit Adopts "Control Test" for Imputation of Fraudulent Intent in Bankruptcy Avoidance Litigation

In yet another chapter in the tortured saga of the fallout from the failed 2007 leveraged buyout of media giant The Tribune Co. ("Tribune"), the U.S. Court of Appeals for the Second Circuit in In re Trib. Co. Fraudulent Conv. Litig., 10 F.4th 147 (2d Cir. 2021), reh'g denied, No. 19-3049 (2d Cir. Oct. 7, 2021), largely upheld lower court dismissals of claims asserted by Tribune's chapter 11 liquidation trustee against various shareholders, officers, directors, employees, and financial advisors for, among other things, avoidance and recovery of fraudulent and preferential transfers, breach of fiduciary duties, and professional malpractice. In so ruling, the Second Circuit adopted the "control test" for determining whether the fraudulent intent of a company's officers can be imputed to its directors for the purpose of avoidance litigation. [read more …]

Another Bankruptcy Court Rules the "Solvent Debtor Exception" Survived Enactment of the Bankruptcy Code

Whether the pre-Bankruptcy Code "solvent debtor exception" requiring the payment of postpetition interest to dissenting unsecured creditors under a chapter 11 plan survived the enactment of the Bankruptcy Code in 1978 has been the subject of a handful of recent court rulings. The U.S. Bankruptcy Court for the District of Massachusetts weighed in on this issue in In re Mullins, 2021 WL 2948685 (Bankr. D. Mass. July 13, 2021), holding that certain provisions of the Bankruptcy Code—namely, the "absolute priority rule" and the "best interests test"—"incorporate and implement the 'solvent debtor exception' established over the course of hundreds of years of insolvency jurisprudence." The court also held that the appropriate rate of postpetition "pendency" interest is the federal judgment rate. [read more …]

An Equitable Tightrope: Blackjewel's Balancing Act on After-Acquired Property in Bankruptcy

In United Bank v. Blackjewel, L.L.C. (In re Blackjewel, L.L.C.), 2021 WL 2667511 (S.D. W. Va. June 29, 2021), appeal filed, No. 21-1831 (4th Cir. July 30, 2021), the U.S. District Court for the Southern District of West Virginia affirmed a bankruptcy court order denying an undersecured lender's motion seeking as a form of "adequate protection" the payment of asset sale proceeds allegedly subject to its prepetition security interest in receivables. According to the district court, the bankruptcy court did not abuse its discretion in finding that it would be inequitable for the lender's liens to attach to the proceeds of a postpetition sale because "allowing [the lender] to receive the proceeds of unencumbered estate assets would be inequitable to the unsecured creditors." [read more …]

Another Bankruptcy Court Joins the Debate on the Validity of Bankruptcy Blocking Restrictions

In In re 3P Hightstown, LLC, 631 B.R. 205 (Bankr. D.N.J. 2021), the U.S. Bankruptcy Court for the District of New Jersey dismissed a chapter 11 case filed by a Delaware limited liability company ("LLC") because the LLC agreement precluded a bankruptcy filing without the consent of a holder of preferred membership interests whose capital contributions had not been repaid. According to the court, the bankruptcy blocking provision was not void as a matter of public policy because, under both Delaware law and the express terms of the LLC agreement, the holder of the preferred membership interests, which held a noncontrolling position, had no fiduciary duties. [read more …]

Eleventh Circuit Splits From Second Circuit on Finality of Chapter 15 Discovery Orders

Disagreeing with the U.S. Court of Appeals for the Second Circuit and based upon the "framework" recently established by the U.S. Supreme Court for determining the finality of bankruptcy court orders, the U.S. Court of Appeals for the Eleventh Circuit ruled in In re Transbrasil S.A. Linhas Aéreas, 2021 WL 3028768 (11th Cir. July 19, 2021), that an order denying a request to quash a subpoena in a chapter 15 case was not final and could not be appealed immediately because the order was "merely a preliminary step" in the context of a broader proceeding. In dicta, however, the Eleventh Circuit appeared to cabin its ruling to the facts before it and noted that if the only purpose of the chapter 15 case is to obtain discovery, a discovery order may be final and immediately appealable because the discovery order is effectively the entire proceeding. [read more …]

Case Update: Second Circuit Breathes New Life Into Madoff Trustee's Efforts to Recover Ponzi Scheme Payments

In In re Bernard L. Madoff Inv. Sec. LLC, 12 F.4th 171 (2d Cir. 2021), the U.S. Court of Appeals for the Second Circuit revived litigation filed by the trustee administering the assets of defunct investment firm Bernard L. Madoff Inv. Sec. LLC, seeking to recover hundreds of millions of dollars in allegedly fraudulent transfers made to former customers and certain other defendants as part of the Madoff Ponzi scheme. The court of appeals vacated a 2019 bankruptcy court ruling dismissing the trustee's claims against certain defendants because he failed to allege that they had not received the transferred funds in "good faith." The Second Circuit also reversed a 2014 district court decision in holding that: (i) "inquiry notice," rather than "willful blindness," is the proper standard for pleading a lack of good faith in fraudulent transfer actions commenced as part of a stockbroker liquidation case under the Securities Investor Protection Act ("SIPA"); and (ii) the defendants, rather than the SIPA trustee, bear the burden of pleading on the issue of good faith. The ruling, which involves test cases for approximately 90 dismissed actions, breathes new life into avoidance litigation seeking recovery of $3.75 billion from global financial institutions, hedge funds, and other participants in the global financial markets. [read more …]

Kumtor Gold Challenges the Practical Application of the Automatic Stay's Global Reach

The chapter 11 cases of Kyrgyzstan mining concern Kumtor Gold Company CJSC and Kumtor Operating Company CJSC pending before Judge Lisa Beckerman in the U.S. Bankruptcy Court for the Southern District of New York have been testing the practical application of the extraterritorial reach of the Bankruptcy Code's automatic stay in a dispute between the Canadian-owned mining companies and the Republic of Kyrgyzstan over nationalization of the mine. [read more …]


Gregory M. Gordon (Dallas), Dan B. Prieto (Dallas), Amanda S. Rush (Dallas), Brad B. Erens (Chicago), Caitlin K. Cahow (Chicago), and Robert W. Hamilton (Columbus) are representing Johnson & Johnson subsidiary LTL Management LLC in the company's chapter 11 case, which was filed on October 14, 2021, in the U.S. Bankruptcy Court for the Western District of North Carolina.

The National Law Journal recognized Kevyn D. Orr (Washington) by including him in its list of Crisis Trailblazers for 2021. Through the various Trailblazers special supplements, the NLJ recognizes agents of change—movers and shakers in the legal industry who have made significant contributions to, and innovations in, their area of practice.

Bruce Bennett (Los Angeles and New York) was honored for his work on the "Mega Company Turnaround/Transaction of the Year," representing certain equity interest holders of chapter 11 debtor PG&E Corp., at the 2021 Turnaround Management Association Annual Conference held from October 26–29, 2021, in Nashville, Tennessee.

Ben Larkin (London) was named to the Legal 500 Hall of Fame in the 2022 edition of The Legal 500 United Kingdom guide in the practice area "Finance–Corporate restructuring and insolvency."

An article written by Corinne Ball (New York), Dan T. Moss (Washington), Michael C. Schneidereit (New York), Isel M. Perez (Miami), and Mark G. Douglas (New York) titled "N.Y. District Court Rules that Chapter 15 Recognition Not Required to Enforce Foreign Bankruptcy Injunction" was published in the October 2021 INSOL News Update.

An article written by Dan B. Prieto (Dallas) and Mark G. Douglas (New York) titled "Structured Ch. 11 Dismissals Aren't Dead, Despite Jevic" was published in the October 6, 2021, edition of Law360.

Ben Larkin (London), John Papadakis (London), and Hanna Plumb (London) coauthored an October 2021 Jones Day Commentary titled "Pension Schemes Act 2021: Implications for the UK's Rescue Culture." The Commentary was prepared with the assistance of Stanzi Rosenthal (London).

An article written by Charles M. Oellermann (Columbus) and Mark G. Douglas (New York) titled "Second Circuit Applies Taggart Standard to Orders Declaring Home Mortgage Loans Current" was published on September 28, 2021, in Lexis Practical Guidance.

An article written by Dan B. Prieto (Dallas) and Mark G. Douglas (New York) titled "Voting Rights Assignment Unenforceable, but Subordinated Creditor Lacked Standing to Participate in Chapter 11 Plan Confirmation Process" was posted on the Harvard Law School Bankruptcy Roundtable on September 21, 2021.

An article written by Brad B. Erens (Chicago) and Mark G. Douglas (New York) titled "Stalking-Horse Bidder May Be Entitled to Administrative Priority for Expenses Despite Failure to Close Bankruptcy Sale" was published on September 28, 2021, in Lexis Practical Guidance.

An article written by Dan B. Prieto (Dallas) and Mark G. Douglas (New York) titled "Structured Dismissal of Chapter 11 Cases Did Not Violate Jevic" was published on September 28, 2021, in Lexis Practical Guidance.

Jones Day was named "Law Firm of the Year" in the practice area "Bankruptcy and Creditor Debtor Rights/Insolvency and Reorganization Law" and received a National Tier 1 ranking for its "Bankruptcy and Creditor Debtor Rights/Insolvency and Reorganization Law" and "Litigation-Bankruptcy" practices in the 2022 U.S. News - Best Lawyers® "Best Law Firms" list published jointly by U.S. News and World Report and Best Lawyers®.

Ben Larkin (London) was ranked in the field of Restructuring/Insolvency in Chambers UK 2022.

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