Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424 (1968); Myers v. Martin (In re Martin), 91 F.3d 389, 393 (3d Cir. 1996)), parties are allowed to propose Section 363 sales and settlements that prefer certain creditors over others, thus circumventing the Bankruptcy Code’s heavily regulated creditor distribution scheme. In particular, an ICL-style arrangement could allow debtors and potential purchasers to incentivize professionals to continue working on cases heading toward administrative insolvency or could be used to avoid litigation by aggrieved creditors with deep pockets.
ICL could also be applied to resolve disputes on the path to a structured dismissal. In an August 2015 decision, the Third Circuit reluctantly upheld the use of a structured dismissal that included distributions made outside of the Code’s priority scheme in a case where the debtors were faced with a variety of unpalatable routes out of bankruptcy. Official Comm. of Unsecured Creditors v. CIT Group/Bus. Credit. Inc. (In re Jevic Holding Corp.), 787 F.3d 173 (3d Cir. 2015). While the Jevic court cabined its holding closely, stating that “bankruptcy courts may, in rare instances like this one, approve structured dismissals that do not strictly adhere to the Bankruptcy Code’s priority scheme,” id. at 180, it is easily distinguishable from ICL since in Jevic there was no dispute that some of the property subject to distribution was property of the estate. Id. at 189 (Sciria, dissenting); Brief of Petitioner-Appellant, Czyzewski v. Jevic Holding Corp., No. 15-649, 2015 WL 7252903 (U.S.), *18 n.4 (3d Cir. Nov. 15, 2015). Read together, ICL and Jevic indicate that the Third Circuit might approve of a structured dismissal in which distributions made in defiance of the Code’s priority scheme are made with moneys from outside of the estate. This opens a world of possibilities for bankruptcy practitioners to consensually wind down bankruptcies through non-traditional means.
In sum, ICL grants parties the freedom to shape their bankruptcies from stem to stern. We expect to see its effects reverberate throughout the Third Circuit as practitioners formulate new and creative strategies to appease constituents while sprinting through the bankruptcy process.
Reprinted with permission from the February 8, 2016 issue of the New Jersey Law Journal. © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
Fun Fact
The Founders awards are named after our 3 founders, Selinda Melnik, Martha Fetner and Laureen Ryan who were all connected to the insolvency industry through different professions and connected by their desire to help other women succeed and flourish in the industry. Selinda is an attorney, Martha is from the banking industry and Laureen is an accountant.
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... that all network chairs receive a small token of appreciation from IWIRC for their service? With such a large and worldwide presence, we unfortunately cannot recognize in person each network chair’s service, but we do send a glass paperweight thanking them for their time and efforts on behalf of IWIRC. Our network chairs ensure IWIRC’s success and the success of our members, so the next time you see one of these current or past leaders, don’t forget to thank them!
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