Category: Bankruptcy

Case Law Alert: Third Circuit Finds No Fraudulent Transfer Liability in Connection With Revocation of Pennsylvania Gaming License

In a June 29, 2021 decision concerning an alleged $50 million fraudulent transfer to the Commonwealth of Pennsylvania, the United States Court of Appeals for the Third Circuit affirmed the dismissal of an action by the liquidating trustee of Philadelphia Entertainment and Development Partners (d/b/a Foxwoods Casino Philadelphia) (the “Debtor”) under Bankruptcy Code Sections 544(b), 548, 550, and 551 to recover the value of a gaming license that had been revoked by the Commonwealth. The Third Circuit determined that, because the license was not a property right under Pennsylvania state law, sovereign immunity barred the trustee’s action against the Commonwealth. The decision turned on the distinction between transferable ownership rights in property versus mere “privileges.” Although the Third Circuit’s opinion in this matter is non-precedential, it nevertheless underscores the importance that state law plays in determining “property of the estate,” and the resulting consequences for debtors and their creditors. By way of example, we would expect to see the same result under New York law with respect to liquor licenses, which – unlike in New Jersey and certain other states – are non-transferable licenses and thus not estate property under Bankruptcy Code Section 541 and state law.

Breaking Bankruptcy News: Subchapter V Debt Limit Extension

On February 25, 2021, Sen. Richard Durbin (D-IL) and Sen. Charles Grassley (R-IA), the Chair and Ranking Member of the U.S. Senate Judiciary Committee, respectively, announced the introduction of a bipartisan bill that will provide continued relief to businesses impacted by the ongoing COVID-19 pandemic. The bill, referred to as the COVID-19 Bankruptcy Relief Extension Act, would extend for an additional year—to March 27, 2022—certain bankruptcy-related provisions originally enacted into law in March 2020 as part of the Coronavirus Aid, Relief, and Economic Stabilization Act (“CARES Act”). Under the CARES Act passed on March 27, 2020, Congress increased to $7.5 million the debt limits for debtors seeking relief under the recently-enacted Subchapter V of chapter 11 of the Bankruptcy Code. 11 U.S.C. §§ 1181-1195 (Subchapter V, enacted in 2019 through the Small Business Reorganization Act, streamlined chapter 11 cases for businesses with non-contingent, secured, and unsecured debts totaling less than $2,725,625. By proceeding under Subchapter V of the Bankruptcy Code, a debtor may, among other things, solicit disclosure and confirmation in a single-step confirmation process, make use of expedited filing deadlines, and retain equity ownership without those equity holders satisfying the “new value” exception to the absolute priority rule under 11 U.S.C. § 1129(b)). If passed, the COVID-19 Bankruptcy Relief Extension Act will ensure that...