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By: Deirdre E. Burke
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently in O’Sullivan v. Loy (In re Loy),[1] a Virginia district court held that although a bankruptcy proceeding is ancillary to a foreign main proceeding, a chapter 15 “case” was commenced upon the filing of the petition for recognition in a United States bankruptcy court and not on the date of commencement of the foreign insolvency proceeding.[2] Certain chapter 15 provisions authorize relief after the “commencement of the case.”[3] Chapter 15, however, does not define the date commencement is considered to have occurred.  As a result, determining whether these statutes refer to the date the foreign proceeding commenced or the date of the foreign representative’s petition for recognition in U.S. bankruptcy courts can have significant ramifications.[4] In this case, an English Trustee was unable to avoid the debtor’s transfer of United States property as a post-petition transfer under sections 1520 and 549 of the Code, because the transfer took place before the English Trustee filed the petition for recognition in U.S. bankruptcy court.[5]

By: Matthew Donoghue
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently in Longview Aluminum, L.L.C. v. Brandt (“Longview”),[1] an Illinois district court held that a member of a limited liability corporation (“LLC”) is an “insider” under 11 U.S.C. § 101(31) of the Bankruptcy Code (“the Code”) regardless of the member’s control over the LLC.[2] The court reached this conclusion by analogizing a member of an LLC to a director of a corporation,[3] which is listed as a per se “insider” under section 101.[4]

By: Samantha Aster
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently, in In re Computer World Solution Inc.,[1] a bankruptcy court in Illinois held that the ordinary course of business defense to a preference claim does not apply to a debtor engaged in a fraudulent Ponzi scheme.[2] In 2006, an electronics distributor who was allegedly running a Ponzi scheme, obtained a $2.2 million loan from its lender.  The day before the loan was to mature, the loan was modified to extend the repayment period.[3] Shortly after the lender obtained a state-court judgment against the debtor it made the disputed payments. The estate sought to avoid these three payments made to the lender as preferences under section 547 of the Bankruptcy Code.[4] Even though the lender was unaware of the fraud, and thus not at fault, the court held that the ordinary course of business defense is inapplicable when the debtor engages in fraudulent conduct.[5] 

By: Rebecca Rose
St. John’s Law Student
American Bankruptcy Institute Law Review Staff

Recently, in Matthys v. Green Tree Servicing, LLC (In re Matthys),[1] a bankruptcy court held that a debtor does not have a private right of action against the creditor who listed the debtor’s full social security number on its proof of claim. This holding is consistent with what the majority of courts have held in similar cases.[2] While the joint debtors in Matthys sought relief under various statutes, including Bankruptcy Code sections 105 and 107,[3] the court found that no private right of action existed. 

By: Brian Powers
St. John’s Law Student
American Bankruptcy Institute Law Review Staff

Section 549(a) empowers a chapter 7 trustee to avoid unauthorized post-petition transfers of estate property.[1]  Recently, in Marathon Petroleum, Co., LLC v. Cohen (In re Delco Oil, Inc.), the court held that there is no protection for an innocent seller of goods who was unaware that the DIP was not authorized to use cash collateral to pay for the delivered good.[2] In the case, the debtor, an oil company, filed a routine first-day motion[3] and simultaneously moved for an emergency order authorizing the use of cash collateral.[4] One of the oil company’s secured creditors objected to the cash collateral motion on the ground that its security interest was not adequately protected.[5] Reserving judgment on the cash collateral motion until after a hearing, the bankruptcy court nevertheless authorized the debtor to continue its business as a DIP.[6] Before the hearing date on the cash-collateral motion, the oil company used cash collateral to purchase approximately $1.9 million of petroleum products without the court’s permission.[7] The cash-collateral motion was subsequently denied, and the oil company voluntarily converted its case to chapter 7.[8] The chapter 7 trustee then filed suit against the oil supplier, attempting to recover the funds paid to it.[9]