1. AUTOMATIC STAY

1.1 Covered Activities

1.1.a Taggart v. Lorenzen standard applies to stay violation in a corporate case. The debtor sold assets prepetition. After the petition date, the buyer demanded payment of certain working capital adjustments provided under the purchase agreement. The automatic stay prohibits any act to collect or recover a prepetition claim. Section 362(k) allows an individual debtor to recover damages for willful violation of the stay. Under Sixth Circuit law, it does not protect non-individual debtors. Therefore, the remedy for a stay violation in a non-individual debtor case is a civil contempt citation under section 105(a). Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), applied the general standards for a civil contempt citation to a violation of the discharge injunction, permitting a contempt finding only if the actor had no objectively reasonable basis on which to assert the discharge injunction did not apply. But in dicta, the decision distinguished automatic stay violations in individual debtor cases, suggesting a strict liability standard might be appropriate. Because section 362(k) does not apply in non-individual debtor cases, the distinction does not apply; the general civil contempt standards apply. In this case, compliance with the purchase agreement regarding purchase price adjustments would not violate the stay, but the belated demand for payment did. However, the seller had an objectively reasonable basis to conclude that the action did not violate the stay. Therefore, the court denies the request for sanctions. Harker v. Eastport Holdings, LLC (In re GYPC, Inc.), ___ B.R. ___ (Bankr. S.D. Ohio Nov. 22, 2021).

1.1.b Refusal to quash a prepetition garnishment writ does not violate the stay as long as the creditor stays all proceedings. Before bankruptcy, the creditor obtained a writ of garnishment and garnished the debtor's bank account. The bank froze the account, but before it turned over any funds to the creditor, the debtor filed a bankruptcy petition. The creditor requested the state court stay the proceedings and advised the court that it had no objection to the bank's release of the funds, but it would not quash its writ or direct the bank to release the funds. The court stayed the proceedings, granted the debtor's request to quash the writ, and denied the debtor's request for a return of the funds. However, the bank unfroze the account a few days later. The automatic stay prohibits (1) a creditor from commencing or continuing an action to collect a prepetition debt, (2) enforcement against the debtor of a prepetition judgment, (3) any act to obtain possession of property of the estate or from the estate or to exercise control over such property, and (6) any act to collect or recover a prepetition claim. City of Chicago v. Fulton, 141 S. Ct. 585 (2021), held that section 362 requires a creditor holding property of the debtor or the estate to maintain the status quo but does not require turnover of the property, which is governed instead by section 542. Refusing to quash the garnishment was not the continuation of a prepetition action, nor is it an attempt to enforce a prepetition judgment, as long as the creditor stayed all proceedings in the action. Refusal to quash the writ was also not an act to obtain property or an act to collect the debt. Here, the creditor did nothing to change its position, and the debtor's account was unfrozen. Therefore, the creditor did not violate the stay. Stuart v. City of Scottsdale (In re Stuart), 632 B.R. 531 (9th Cir. B.A.P. 2021).

1.2 Effect of Stay

1.3 Remedies

2. AVOIDING POWERS

2.1 Fraudulent Transfers

2.1.a Tax foreclosure sale for the amount of taxes owing is subject to attack as a fraudulent transfer. The debtor defaulted on property taxes. In accordance with state law, the local taxing authority foreclosed on the property by bidding in the amount of the taxes, which was about 10% of the fair market value of the property. The debtor filed a chapter 13 case and brought a constructive fraudulent transfer action under section 548(a)(1)(B) to avoid the foreclosure sale. Section 548(a)(1)(B) permits a trustee (or a chapter 13 debtor) to avoid a transfer of property of the debtor made for less than reasonably equivalent value within two years before the petition date while the debtor was insolvent. In BFP v. Res. Trust Corp., 511 U.S. 531 (1994), the Supreme Court held that a regularly conducted, non-collusive mortgage foreclosure sale resulted in reasonably equivalent value and so was not subject to avoidance as a fraudulent transfer. However, the Court did not address tax foreclosures. In this case, the ability of the taxing authority to purchase the property without an auction for a price that had no relation to the property's value gave rise to potential fraudulent transfer liability. Lowry v. Southfield Neighborhood Revitalization Initiative (In re Lowry), ___ F.4th ___, 2021 U.S. App. LEXIS 13042 (6th Cir. Dec. 27, 2021).

2.2 Preferences

2.3 Post-petition Transfers

2.4 Setoff

2.5 Statutory Liens

2.5.a Section 108(c) does not toll the period for giving notice under section 546(b). A creditor recorded a notice of mechanics lien prepetition. State law required that the creditor file an action to enforce the lien within 90 days after recordation. The debtor filed its petition during the 90-day period. The creditor gave notice under section 546(b) more than 90 days after the recordation date. Section 546(b) provides that in lieu of seizing property or commencing an action required under non-bankruptcy law to continue or maintain perfection of a lien, the creditor may continue or maintain the lien "by giving notice within the time fixed by such law for such seizure or such commencement," and giving such notice does not violate the automatic stay. Section 108(c) tolls the limitations period for a creditor to commence an action until the later of the end of such period or 30 days after notice of termination of the automatic stay. Because section 546(b) gives an alternative-giving notice-that does not violate the stay, section 108(c) does not toll the period for giving notice. Therefore, the creditor's notice was late, and his lien terminated. Philmont Mgmt., Inc. v. 450 Western Ave., LLC (In re 450 Western Ave., LLC), 633 B.R. 894 (9th Cir. B.A.P. 2021).

2.6 Strong-arm Power

2.7 Recovery

3. BANKRUPTCY RULES

4. CASE COMMENCEMENT AND ELIGIBILITY

4.1 Eligibility

4.1.a Shareholder approval requirement for a bankruptcy petition is not contrary to public policy. The LLC debtor borrowed from an investor, who also acquired, for a separate substantial price, a preferred equity interest. The debtor's LLC agreement was amended to provide that the debtor could not file a bankruptcy petition without the affirmative vote of a majority of the preferred units. Applicable non-bankruptcy law determines who has authority to file a bankruptcy petition. A court should enforce any provision in the debtor's organic documents that specifies who has the authority. Such a provision might be contrary to public policy if it provided only a "golden share" to a creditor to prevent a filing. Here, however, the creditor is also a substantial equity holder, who, as a non-managing member of an LLC, does not have fiduciary duties to the LLC or its other members and thus may protect its rights by withholding consent to the bankruptcy filing. In re 3P Hightstown, LLC, 631 B.R. 205 (Bankr. D.N.J. 2021).

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