Consumer Bankruptcy Journal Spring 2016 - Page 14

ABC Assignee Banned from Filing a Voluntary Bankruptcy Petition By Robert C. Meyer T he Eleventh Circuit Court of Appeals recently ruled that assignees involved with an assignment for the benefit of the creditors, as defined under Florida statute, do not have the right to voluntarily file a bankruptcy petition for the assigned corporation.1 This concept initially appears to be a newly created prohibition but merely incorporates old precedent. Below, this article will commence with some background information about restrictions on bankruptcy filing, and how this ruling does not create new limitations; but incorporates limitations created 70 years ago by the United States Supreme Court. Historical Perspective Chapter May be Filed on What The three primary chapters offered in bankruptcy involve liquidation (Chapter 7) or reorganization (Chapters 11 and 13). Statutory clauses to the Bankruptcy Code limit the ability or filing chapter 13. First, a Chapter 13 14 CONSUMER BANKRUPTCY JOURNAL debtor cannot be an entity.2 And, the individual who seeks Chapter 13 protection, cannot have debts exceeding certain limits.3 Alternatively, Chapter 11 will accept most any individual and has only a few limits for entities.4 In fact, most entities are permitted to file under Chapter 11 even though some are prohibited5 to file under Chapter 7.6 Individuals who merely resided in the United States (citizenship is not required) may file for Chapter 7 relief. Pre-BACPA7, several federal rulings held that there is no good faith filing requirement in a Chapter 7 bankruptcy proceeding.8 Post-BACPA, or after 2005, amendments to the Bankruptcy Code introduced additional bad faith clauses into section 707(b). PostBACPA, the majority of courts held that bad faith constitutes cause for dismissal under section 707(a). A slew of published rulings have since prohibited individuals from filing Chapter 7 petitions.9 Not surprisingly, there were fact-driven exceptions to the new rule.0 Spring 2016 Who May Sign A related issue addresses who may sign the papers for the voluntary filing. That issue – which is not addressed by the Bankruptcy Code – became a jurisprudentially created limitation. For individuals, the cases are relatively limited to forgery. For corporations or other entities, the issues largely focus upon authorization. The corporate cases demand corporate review under the applicable state statutes and apply such state law for purposes of authority to file. In 1945, the United States Supreme Court reviewed this issue and ruled, “If the District Court finds that those who purport to act on behalf of the corporation have not been granted authority by local law to institute the proceedings, it has no alternative but to dismiss the petition. It is not enough that those who seek to speak for the corporation may have the right to obtain that authority.”1 In short, state law governs the authorization of a party to file federal bankruptcy.2 National Association of Consumer Bankruptcy Attorneys