Bankruptcy Court Litigation

A bankruptcy trustee or Chapter 11 debtor-in-possession may bring any lawsuit that the debtor company could have brought prior to bankruptcy, and a few more besides.

Recovery of Fraudulent Transfers

A bankruptcy trustee or Chapter 11 debtor-in-possession has the power to set aside and recover fraudulent transfers. The obvious type (an "actual" fraudulent transfer) is a transfer made by the debtor with intent to hinder, delay or defraud its creditors. The less obvious type (a "constructive" fraudulent transfer) is a transfer made for less than reasonably equivalent value while the debtor was in financial distress. For this purpose, financial distress primarily consists of either unreasonably small working capital or actual insolvency (liabilities exceeding assets at fair value). One of the hazards of buying assets from a troubled company is that if you get too good a deal - in other words, if the price is less than "reasonably equivalent value" - then you might later be sued to make up the difference or, perhaps worse, to give back the assets. A trustee always has the right to recover a fraudulent transfer made within one year before the filing of a bankruptcy petition, and may utilize any longer lookback period provided by state law (four years is typical) if the debtor was insolvent at the time of the transfer. To learn more about buying the assets of a troubled company, click here.

Suits Against Directors and Officers

Creditors' committees and bankruptcy trustees seeking to assess blame for the company's demise, stockholders whose equity may become diluted or worthless, and others whose expectations are disappointed by a company's performance may bring suit against the company's directors and officers.

Avoidance of Liens

If you were granted a lien on assets of the debtor, that lien may be set aside as a preferential transfer, just like the cash payments described above. A trustee or a Chapter 11 debtor-in-possession also has the power to set aside certain liens arising under state law, such as a landlord's lien for unpaid rent. Any interest in real estate that would not be valid against a bona fide purchaser and any interest in personal property that would be trumped by a creditor's attachment can also be set aside by a bankruptcy trustee or debtor-in-possession.

Recovery of Preferential Payments

If you received payment of a perfectly legitimate invoice within 90 days before the debtor went into bankruptcy (a year, if you are an "insider" as defined by the bankruptcy law), the trustee or debtor-in-possession may have the right to recover the payment as a "preferential transfer." The theory behind this provision of the Bankruptcy Code is that if some creditors got paid and others did not, it would be fair to recover all payments so they can be added to the pool of assets available for all creditors. Payments to creditors made by the debtor during the 90-day or one-year lookback period will be recoverable only if the debtor was insolvent at the time it made the payment. Further, the payment must have been on account of a preexisting obligation; C.O.D. payments are not recoverable so long as the debtor's check cleared promptly. And a creditor need not disgorge any payment to the extent that the creditor would have gotten paid even in a Chapter 7 liquidation (where a bankruptcy trustee sells off the assets of a shut down business), for example, if the creditor held a valid lien on assets of the debtor.

Even though a payment or other transfer is preferential under these rules, a creditor might be excused from giving it back. Most importantly, a creditor is not required to restore a payment that was made in the ordinary course of business, according to principles contained in the Bankruptcy Code and refined by the courts. And a creditor need not disgorge a preferential payment to the extent that, after receiving the payment, the creditor supplied new goods or services and did not get paid.

This capsule summary only touches the surface of this complex area of law. In order to avoid the uncertainties of litigation and to reduce legal fees, bankruptcy trustees will often settle on favorable terms with defendants who are represented by aggressive counsel.

Our experience and capabilities in the various aspects of a bankruptcy practice include a variety of areas, such as:

• Bankruptcies
• Recovery of Preferential Payments
• Avoidance of Liens
• Recovery of Fraudulent Transfers
• Suits Against Directors and Officers
• Alternatives to bankruptcy
• Bankruptcy litigation
• Creditor committee representation
• Creditors' remedies
• Debtor representation
• Distress acquisitions
• Equity holders
• Indenture trustees
• Lender liability
• Lessors, franchisors and licensees
• Representation of secured or unsecured creditors
• Suppliers and customers

We represent our clients in all types of regional, national and cross-border insolvency matters, ranging in size and complexity from out of court loan workouts and financial restructurings to bankruptcy proceedings in multiple jurisdictions, creditors' rights litigation and distressed acquisitions. Our clients span a wide ranging spectrum, including secured lenders, debtors, bank groups, ad hoc and official creditors' committees, indenture trustees, loan servicers, equity holders, real property and equipment lessors, bankruptcy trustees and buyers.

Creditors' Rights and Provisional Remedies

Dunbar Law attorneys work daily to develop solutions for creditors that create and preserve value. Provisional remedies are time sensitive and offer tactical advantages in resolving a dispute. Our attorneys move quickly to identify the right opportunity and implement the appropriate remedy based on the client's needs. Our success has ranged from obtaining writs of attachment in both state and federal proceedings to the appointment of receivers to preserve collateral to recovering indebtedness from both primary obligors and guarantors. We are regularly retained by financial institutions on receivership matters. Our attorneys have been successful in obtaining receivers for a diverse cross section of businesses and properties including commercial and industrial sites, hotels, golf courses and apartment complexes. Our guidance of the receivership process, beginning with evaluating state and local laws and ending in the ultimate disposition of the property, has provided our clients with prompt results and savings.

Bankruptcy Litigation

The firm's attorneys represent clients in all aspects of litigation in Bankruptcy Court. Our attorneys have handled a wide range of issues presented in the bankruptcy litigation process that have ranged from disputes over cash collateral and debtor in possession financings to "363 sale" transactions and the confirmation of reorganization plans to relief from the automatic stay and preference recovery and fraudulent transfer actions, among many others.

Our attorneys also represent clients on bankruptcy appeals in the district courts, before the Bankruptcy Appellate Panel and the Circuit Courts of Appeal. Our proven track record and deep expertise in bankruptcy related appellate matters has allowed us to offer the best possible solutions to our clients.