Known as a bedrock principle in chapter 11 cases, the
"absolute priority rule" serves as an important
protection for creditors. In general terms, it requires senior
classes of creditors to be provided for in full before a junior
class can receive a distribution under a chapter 11 plan. While
this rule continues to apply in business chapter 11 cases, courts
are divided on whether it applies to individual chapter 11 debtors.
This issue is not a mere consumer matter, but impacts creditors who
have made loans to sole proprietorships or have loans guaranteed by
such debtors. Given the dichotomy in the courts, creditors should
understand how to navigate this issue.
A chapter 11 plan provides a distribution to classes of
creditors to satisfy their claims against the debtor....
Specific Questions relating to this article should be addressed directly to the author.
Internal investigations of billing issues usually involve audits. It is important to approach an audit carefully or the auditors can create more risk for the organization by misinterpreting the standards.
In Industrial Enterprises of America v. Burtis (In re Pitt Penn Holding Co., Inc.), 2012 WL 204095 (Bankr. D. Del. Jan. 24, 2012), a Delaware bankruptcy court held that the two-year statutory "look-back" period with respect to which a fraudulent transfer may be avoided pursuant to section 548 of the Bankruptcy Code cannot be "equitably tolled."
As the Public Company Accounting Oversight Board (PCAOB) inspects audits conducted by the registered independent accounting firms it regulates, it continues to see numerous audit failures relating to the accounting for, and disclosure of, related party1 and significant unusual transactions.
Compliance audits of outsourcing service provider arrangements have become increasingly common over the past few years, especially for service scope affecting public companies’ financial reporting.
Troubled offshore funds may have to become more creative in looking to protect their U.S. assets from creditors, if a controversial new bankruptcy court decision is upheld. A U.S. bankruptcy court in New York has declined to recognize the Cayman Islands liquidation proceedings filed by two Bear Stearns hedge funds whose Cayman liquidators had sought to protect against seizure of U.S. assets by filing petitions for protection under Chapter 15 of the Bankruptcy Code.
For decades there have been few, if any, significant opinions that considered a secured creditor’s right to credit bid its claim in an asset sale under a Chapter 11 plan.
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