Weekly Bankruptcy Alert April 7, 2025 (For the Week Ending April 6, 2025)
Covering reported business bankruptcy filings in Massachusetts, Maine, New Hampshire, and Rhode Island, and Chapter 11 bankruptcy filings in New York and Delaware listing assets of more than $1 million.
Chapter 11
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
Leisure Investments Holdings LLC2(Cancun, Quintana Roo Mexico)
Amusement Parks and Arcades
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
3/31/25
Boston Harbor Distillery, LLC(Dorchester, MA)
Not Disclosed
Boston(MA)
$500,001to$1 Million
$1,000,001to$10 Million
3/31/25
Terra Laguna Beach, Inc.(Newport, CA)
Restaurants and Other Eating Places
Wilmington(DE)
$1000,000,001to$500 Million
$100,000,001to$500 Million
3/31/25
Majestic Motors, Inc.(Revere, MA)
Not Disclosed
Boston(MA)
$50,001to$100,000
$500,001to$1 Million
4/1/25
Kognitiv US LLC(Minneapolis, MN)
Computer Systems Design and Related Services
Wilmington(DE)
$10,000,001to$50 Million
$10,000,001to$50 Million
4/2/25
Boothe Investments LLC(Worcester, MA)
Not Disclosed
Worcester(MA)
$100,001to$500,000
$100,001to$500,000
4/4/25
House Spirits Distillery LLC(Portland, OR)
Beer, Wine and Distilled Alcoholic Beverage Merchant Wholesalers
Wilmington(DE)
$1,000,001to$10 Million
$1,000,001to$10 Million
4/4/25
Chapter 7
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
Artisan & Archive, Inc.(Concord, MA)
Not Disclosed
Worcester(MA)
$50,001to$100,000
$500,001to$1 Million
3/31/25
Global Rugby Ventures, LLC(Hanover, MA)
Not Disclosed
Concord(NH)
$0to$50,000
$1,000,001to$10 Million
3/31/25
Alves HVAC Services, Inc. (Bellingham, MA)
Not Disclosed
Worcester(MA)
$0to$50,000
$500,001to$1 Million
4/1/25
St. Peter’s Country Store, LLC(Cross Lake TWP, ME)
Not Disclosed
Bangor(ME)
$0to$50,000
$100,001to$500,000
4/1/25
Wilde Properties LLC(Cross Lake TWP, ME)
Activities Related to Real Estate
Bangor(ME)
$500,001to$1 Million
$1,000,001to$10 Million
4/1/25
Wilde Recreation, LLC(Cross Lake TWP, ME)
Consumer Goods Rental
Bangor(ME)
$0to$50,000
$50,001to$100,000
4/1/25
Roar Social, Inc.(West Hollywood, CA)
Not Disclosed
Wilmington(DE)
$1,000,001to$10 Million
$1,000,001to$10 Million
4/4/25
1Business Type information is taken from Bankruptcy Court filings, which may include incorrect categorization by the debtor or others.
2Additional affiliate filings include: Aqua Tours, S.A. de C.V., Dolphin Austral Holdings, S.A. de C.V., Dolphin Capital Company, S. de R.L. de C.V., Dolphin Leisure, Inc., Ejecutivos de Turismo Sustentable, S.A. de C.V., Gulf World Marine Park, Inc., GWMP, LLC, Icarus Investments Holdings LLC, Marineland Leisure Inc., MS Leisure Company, Promotora Garrafon, S.A. de C.V., The Dolphin Connection, Inc., Triton Investments Holdings LLC, Viajero Cibernetico S.A. de C.V.
CSBS Flags Key Risks in Draft Stablecoin Legislation
On April 1, the Conference of State Bank Supervisors (CSBS) submitted a letter to the House Financial Services Committee expressing concerns with an introduced draft of H.R. 2392—the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act of 2025 (the “Act”)—which purports to establish a comprehensive regulatory framework for payment stablecoins in the U.S. In the letter, CSBS expresses support for the development of a national framework for payment stablecoin issuers (PSIs), while warning that the current draft would unnecessarily preempt state regulatory authority and introduce risks to consumer protection and financial stability.
CSBS contended that, as currently drafted, the Act would centralize excessive authority over the stablecoin industry in a single federal agency, likely the OCC, undermining the dual banking system. The letter also emphasized that states already regulate over $50 billion in stablecoin activity and called on Congress to retain the benefits of a cooperative federal-state oversight model.
The letter identified 5 key changes needed to preserve the United States’ longstanding cooperative federalism model for the banking system and mitigate related risk factors, including:
Limiting PSI activities to stablecoin issuance. The proposed draft of the Act allows PSIs to engage in non-stablecoin-related financial activities. The CSBS argues that this, in combination with the Act’s capital and liquidity restrictions, increases operational and liquidity risks that could destabilize the market.
Removing unnecessary preemption of state authority. As drafted, the Act would expand federal preemption to (i) the parent of a federal PSI, (ii) state authority over PSI subsidiaries of national banks, (iii) PSI subsidiaries of state-chartered banks, and (iv) other non-stablecoin activities approved by federal regulators.
Establishing true parity for state issuers. The Act aims to establish a national framework for stablecoin issuers, but as drafted, it stacks the deck in favor of federal PSIs, by allowing host states to impose additional, undefined obligations on state-level PSIs operating outside their home state.
Adopting more robust capital and liquidity standards. While the Act tells regulators to set standards for capital, liquidity, and risk management, it limits capital to just what’s needed to keep the business running and prohibits stronger, risk-based capital requirements. The CSBS argues this isn’t enough to prevent redemption runs and other financial risks.
Protecting customer funds in bankruptcy. The Act does not clarify how stablecoin holders would recover their funds if an issuer fails. The letter proposes requiring reserves to be held in trust outside the stablecoin issuer’s estate to help safeguard consumers in case of PSI bankruptcies.
Putting It Into Practice: The CSBS’s opposition to certain provisions of the Act comes at a time when federal regulators are recalibrating their approach to digital assets (previously discussed here, here, and here). The letter underscores the friction between recent efforts to streamline federal oversight of digital assets and the longstanding state-led model for regulating money services firms. As Congress debates a national framework for stablecoins, financial institutions should closely monitor these events as they unfold.
The Nuts & Bolts of a Lift Stay Motion in a Bankruptcy Case
The automatic stay is one of the most powerful protections available to debtors in bankruptcy, immediately halting most collection efforts, foreclosures, and lawsuits. This mechanism provides the debtor with breathing room to reorganize finances and prevents creditors from racing to recover assets.
However, creditors are not without options. They can challenge the stay through a motion for relief, which can lead to enabling them to proceed with foreclosure, repossession, litigation, or other action under certain conditions. Understanding the nuances of this process is crucial for legal and financial professionals working in bankruptcy law.
Understanding the Automatic Stay
The automatic stay takes effect immediately upon the filing of a bankruptcy petition under Section 362(a) of the US Bankruptcy Code. It serves several key functions:
Halting litigation against the debtor
Preventing asset repossession and foreclosure
Stopping debt collection efforts, including garnishments
Maintaining the status quo while the debtor works toward financial rehabilitation
As Matt Christensen of Johnson May explains, the automatic stay applies without any need for a separate court order, meaning that creditors must cease collection efforts as soon as they become aware of the filing. Courts take violations of the stay seriously, and creditors who ignore it risk facing sanctions or penalties.
Grounds for Lifting the Automatic Stay
Creditors may seek to lift the automatic stay under Section 362(d) of the Bankruptcy Code. The most common justifications include:
1. ‘For Cause,’ Including Lack of Adequate Protection
One of the strongest arguments for lifting the stay is that a secured creditor’s interests are not adequately protected. This is especially relevant when a secured asset (such as real estate or equipment) is losing value and the debtor is not making payments or maintaining insurance.
Tim Anzenberger of Adams and Reese noted that creditors should provide evidence, such as declining property values or unpaid property taxes, to demonstrate that the value of their collateral is at risk. Inadequate protection can be grounds for relief, as courts aim to ensure that secured creditors do not suffer undue losses while the bankruptcy case proceeds.
2. ‘Lack of Equity’ and ‘Non-Essential’ to Reorganization
If a debtor owes more money to a secured creditor whose collateral is worth less than the amount of the debt (i.e., the debtor lacks equity in the collateral), and the asset is not necessary for reorganization, the stay can be lifted to allow the creditor to recover the collateral.The court will weigh whether the asset is essential for the debtor’s long-term viability before deciding on stay relief on this basis.
For example, Ryan Hardy, a partner with Levenfeld Pearlstein, explains that, in the case of a failing business, non-essential equipment or real estate might be subject to foreclosure, especially if liquidation is the likely outcome.
3. Single Asset Real Estate Cases
In single asset real estate (SARE) cases, a special provision applies. If the debtor does not file a reorganization plan or make payments within 90 days, the creditor may automatically seek stay relief. This prevents debtors from using bankruptcy as a mere delay tactic without a legitimate plan for restructuring.
4. Bad Faith Filings
Courts scrutinize bankruptcy cases to prevent abuse of the system. If a debtor files for bankruptcy solely to delay a foreclosure or to frustrate creditors without a valid reorganization plan, the court may find bad faith and lift the stay.
Maria Carr of McDonald Hopkins highlights that repeated filings right before a foreclosure sale are often viewed as a red flag. Creditors can present a history of past filings and delays to demonstrate that the debtor is acting in bad faith, strengthening their case for stay relief.
Procedure for Filing a Motion To Lift the Stay
A motion for relief from the stay follows a structured legal process:
Filing the Motion – The creditor submits a written motion explaining why relief is warranted, citing legal grounds and supporting evidence.
Notice to Interested Parties – The debtor and other affected parties must be formally notified.
Court Hearing – If the debtor objects, a hearing is scheduled where both sides present arguments.
Court Ruling – The judge decides whether to lift, modify, or keep the stay in place.
A contested motion often requires valuation evidence, financial projections, and expert testimony from appraisers or financial analysts.
Conclusion
The automatic stay is a critical component of bankruptcy law, preventing immediate collection actions. Understanding how courts evaluate lift stay motions is essential for attorneys, creditors, and financial professionals involved in bankruptcy litigation. Courts carefully balance debtor protections and creditor rights, weighing the evidence presented.
Filing a motion for relief requires a strategic approach, including valuation analysis and legal justification. By knowing the rules, legal strategies, and key arguments, parties can better protect their interests in Chapter 11 and other bankruptcy cases.
To learn more about this topic, view the webinar The Nuts & Bolts of Chapter 11 (Series I) / The Nuts & Bolts of a Lift Stay Motion. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested in reading other articles about Chapter 11.
This article was originally published here.
©2025. DailyDACTM, LLC. This article is subject to the disclaimers found here.
El-Husseiny v Invest Bank – Expanding Office Holder Claims? (UK)
S423 of the Insolvency Act 1986 (IA 1986) provides a route for office holders to challenge transactions where a person deliberately transfers assets at an undervalue to put them beyond the reach of creditors. The Supreme Court in El-Husseiny and another (Appellants) v Invest Bank PSC (Respondent) [2025] UKSC 4 recently confirmed what is meant by “transaction” in the context of s423 – and that the same meaning should be given to “transactions” caught by s238 and s339 of the IA 1986.
Claims under s423 can be more difficult to establish than claims under s238 of the IA 1986 because although both claims require there to have been a transaction at an undervalue (or for no consideration) s423 also requires an office holder to prove that there was an intention to put assets beyond the reach of creditors. An office holder is therefore more likely to bring a claim under s238 than s423, and for that reason, this judgment is helpful because it broadens the types of transactions that might fall within the definition of “transaction”.
Transaction is defined in s436 to include “a gift, agreement or arrangement” and the Supreme Court was not prepared to restrict the meaning of this and decided that a “transaction” includes assets not directly legally or beneficially owned by the debtor.
It is helpful to know the facts of this case to give some context to the particular transaction the court had to consider.
Facts and Decision
The s423 claim was brought in this case by Invest Bank in their capacity as a creditor of the appellants’ father, Mr Mohammad El-Husseini (not as an officeholder – but the findings apply equally to office holder claims).
Invest Bank had successfully obtained a judgment against Mr El-Husseini in Abu Dhabi for circa £20m, and they identified UK based assets against which they could enforce the judgment. Invest Bank argued Mr El-Husseini had transferred assets (most notably a property in London) to put them beyond the reach of Invest Bank.
While there were multiple assets caught by the s423 claim, the judgment focused on the transfer of the London property.
Before the London Property was transferred, it was legally and beneficially owned by a Jersey company, Marquee Holdings Limited (“Marquee”). It was worth about £4.5 million. At the time of the transfer, Mr El-Husseini was the beneficial owner of all the shares in Marquee.
Mr El-Husseini arranged with one of his sons, Ziad Ahmad El-Husseiny (“Ziad”), that he would cause Marquee to transfer the legal and beneficial ownership of the London property for no consideration.
In June 2017, Mr El-Husseini caused Marquee to transfer the legal and beneficial title to the London property to Ziad. Ziad did not pay any money or provide any other consideration either to Marquee or to Mr El-Husseini in return for the London Property.
The effect of the transfer was that Mr El-Husseini’s shareholding in Marquee was now significantly reduced, prejudicing Invest Bank’s ability to enforce its judgment against him.
The issue on appeal was whether s423 could apply to a transaction such as this – where a debtor procures a company which he owns to transfer a valuable asset owned by the company for no consideration or at an undervalue which has the effect of reducing or eliminatating the value of the debtor’s shareholding in the company, or whether such a transaction is not caught because the debtor does not personally own the asset.
The court at first instance held that the fact that the London property was not directly owned by Mr El-Husseini did not prevent the arrangement being a “transaction” for the purposes of s423. The point was appealed, and the Court of Appeal agreed with findings of the court at first instance. Ultimately as the issue raised an important point of statutory construction the Supreme Court considered the point and judgment was given.
The Supreme Court upheld the findings of the High Court and the Court of Appeal regarding the meaning of a “transaction”. The language and purpose of s423(1) is not confined to dealing with an asset that is legally or beneficially owned by the debtor but extends to this type of transaction. Restricting transactions to those that directly involve property owned by a debtor would not only require an implied restriction to be read into the provision but doing that would also seriously undermine the purpose of s423.
Concluding Comments
Despite the Bank’s claim not succeeding in this case (it was unable to demonstrate that Mr El- Husseini had the requiste intention when transferring the London property), the decision is nonetheless helpful to insolvency practitioners, as it confirms the wide meaning of the word “transaction” within s423, s238 and s339.
It also helpfully confirms that a debtor does not need to legally or beneficially own an asset for a transaction to be caught under those provisions. The most obvious example where this is likely to be the case is in situations such as those considered in this case – where a debtor owns shares in a company and causes that company to transfer valuable assets thereby reducing the value of the shareholding.
And Just Like That Another Restructuring Plan Is Sanctioned with HMRC Supporting (UK)
The Outside Clinic restructuring plan (RP) was sanctioned last week with HMRC voting in favour of it. In a similar vein to Enzen (see our earlier blog) HMRC initially indicated that it was not inclined to support the plan, but, after negotiating a higher return following the convening hearing, it voted in favour of it. A somewhat different outcome in circumstance where HMRC had (prior to the company proposing a plan) instructed its solicitors to present a winding up petition after attempts to agree a time to pay agreement had failed.
HMRC’s engagement and support is welcome (as it is on any restructuring), but the outcome in both this case, and Enzen, should not be taken as a green light that HMRC’s support is guaranteed – much will depend on the terms of the plan.
Under the terms of the Outside Clinic RP as originally proposed, HMRC would have received a dividend of 5p in the £ in respect of its secondary preferential claims of c£1.45m, compared to nil in the relevant alternative. HMRC would also have been treated the same as other unsecured creditors who also were to receive 5p in the £.
Following the convening hearing, HMRC flagged a number of concerns which the plan company had to address not least
Whether the “no worse off” test could be satisfied – with concern about the recoverability of receivables/book debts which (if the assumptions were wrong) could see a different return in the alternative (an argument we saw in opposition to the plan proposed by the Great Annual Savings company); and
HMRC’s treatment compared to other creditors (as noted above the plan originally proposed to treat HMRC in the same way as unsecured creditors)
HMRC’s improved position seems to have come about partly as a result of the plan company subsequently acknowledging that HMRC is an involuntary creditor and that it has a role to play as collector of taxes.
Perhaps more will come from the judgments on both this case and Enzen, but the key takeaways at the moment are that a plan company must (a) recognise that HMRC is an involuntary creditor and (b) its role in collecting taxes – something that reflects HMRC guidance too.
If HMRC’s status is recognised in a plan perhaps HMRC will support from the outset, especially so given HMRC’s new stated policy is “to participate as fully as possible in plans – which will include, when necessary and desirable, negotiating with plan companies on HMRC’s return under a restructuring plan”.
Chapter 15: A More Efficient Path for Recognition of Foreign Judgments as Compared with Adjudicatory Comity
Chapter 15 of the United States Bankruptcy Code, which adopts the United Nations Commission on International Trade Law’s (“UNCITRAL”) Model Law on Cross-Border Insolvency, provides a streamlined process for recognition of a foreign insolvency proceeding and enforcement of related orders. In adopting the Model Law, the legislative history makes clear that Chapter 15 was intended to be the “exclusive door to ancillary assistance to foreign proceedings,” with the goal of controlling such cases in a single court. Despite this clear intention, U.S. courts continue to grant recognition to foreign bankruptcy court orders as a matter of comity, without the commencement of a Chapter 15 proceeding.
While it is tempting choice for a bankruptcy estate representative to seek a quick dismissal of U.S. litigation, without the commencement of a Chapter 15 case, it is not always the most efficient path.[1] First, because an ad hoc approach to comity requires a single judge to craft complex remedies from dated federal common law, there is a significant risk that such strategy will fail (and the estate representative will subsequently need Chapter 15 relief), increasing litigation/appellate risk and thus, the foreign debtor’s overall transaction costs in administering the case.[2] Second, the ad hoc informal comity approach is of little use to foreign debtors, who need to subject a large U.S. collective of claims and rights to a foreign collective remedy in the United States because it does not give the foreign representative the specific statutory tools available in Chapter 15—the ability to turn over foreign debtor assets to the debtor’s representative; to enforce foreign restructuring orders, schemes, plans, and arrangements; to generally stay U.S. litigation against a foreign debtor in an efficient, predictable manner; to sell assets in the United States free and clear of claims and liens and anti-assignment provisions in contracts; etc.[3]
Wayne Burt Pte. Ltd. (“Wayne Burt”), a Singaporean company, has battled to recognize a Singaporean liquidation proceeding (the “Singapore Liquidation Proceeding”) (and related judgments) in the United States, highlighting the inherent risks in seeking recognition outside of a Chapter 15 case. The unusually litigious and expensive pathway Wayne Burt followed to enforce certain judgments shows how Chapter 15 provides an effective streamlined process for seeking relief.
First, Wayne Burt sought dismissal, as a matter of comity, of a pending lawsuit in the U.S. District Court for New Jersey (the “District Court”). On appeal, after years of litigation, the Third Circuit concluded that the District Court did not fully apply the appropriate comity test and remanded the case for further analysis. Thereafter, the liquidator sought, and obtained, recognition of Wayne Burt’s insolvency proceeding under Chapter 15 in the U.S. Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”), including staying District Court litigation that had been in dispute for five years in the United States and ordering the enforcement of a Singaporean turnover order that had been the subject of complex litigation as well within two months of the commencement of the Chapter 15 case.
The Dispute Before the District Court
The Wayne Burt case originated, almost exactly five years ago, as a simple breach of contract claim and evolved into a complex legal battle between Vertiv, Inc., Vertiv Capital, Inc., and Gnaritis, Inc. (together “Vertiv”), Delaware corporations, and Wayne Burt. The litigation began in January 2020, when Vertiv sued Wayne Burt in District Court, seeking to enforce a $29 million consent judgment entered in its favor. At the time the consent judgment was entered, however, Wayne Burt was already in liquidation proceedings in Singapore. Thus, a year after the entry of judgment, the liquidator moved to vacate the judgment on the grounds of comity.
On November 30, 2022, the District Court granted Wayne Burt’s motion and dismissed the complaint with prejudice.[4] The District Court based its decision on a finding that Singapore shares the United States’ policy of equal distribution of assets and authorizes a stay or dismissal of Vertiv’s civil action against Wayne Burt. Vertiv appealed to the Third Circuit.
The Third Circuit Establishes a New Adjudicatory Comity Test
In February 2024, the Third Circuit, in its opinion, set forth in detail a complex multifactor test for determining when comity will allow a U.S. court to enjoin or dismiss a case, based on a pending foreign insolvency proceeding, without seeking Chapter 15 relief.[5] This form of comity is known as “adjudicatory comity.” “Adjudicatory comity” acts as a type of abstention and requires a determination as to whether a court should “decline to exercise jurisdiction over matters more appropriately adjudged elsewhere.”[6]
As a threshold matter, adjudicatory comity arises only when a matter before a United States court is pending in, or has resulted in a final judgment from, a foreign court—that is, when there is, or was, “parallel” foreign proceeding. In determining whether a proceeding is “parallel,” the Third Circuit found that simply looking to whether the same parties and claims are involved in the foreign proceeding is insufficient. That is because it does not address foreign bankruptcy matters that bear little resemblance to a standard civil action in the United States. Instead, drawing on precedent examining whether a non-core proceeding is related to a U.S. Bankruptcy proceeding, the Third Circuit created a flexible and context specific two-part test. A parallel proceeding exists when (1) a foreign proceeding is ongoing in a duly authorized tribunal while the civil action is before a U.S. Court, and (2) the outcome of the U.S. civil action could affect the debtor’s estate.
Once the court is satisfied that the foreign bankruptcy proceeding is parallel, the party seeking extension of comity must then make a prima facie case by showing that (1) the foreign bankruptcy law shares U.S. policy of equal distribution of assets, and (2) the foreign law mandates the issuance or at least authorizes the request for the stay.
Upon a finding of a prima facie case for comity, the court then must make additional inquiries into fairness to the parties and compatibility with U.S. public policy under the Third Circuit Philadelphia Gear[7] test. This test considers whether (1) the foreign bankruptcy proceeding is taking place in a duly authorized tribunal, (2) the foreign bankruptcy court provides for equal treatment of creditors, (3) extending comity would be in some manner inimical to the country’s policy of equality, and (4) the party opposing comity would be prejudiced.
The first requirement is already satisfied if the proceeding is parallel.[8] The second requirement of equal treatment of creditors is similar to the prima facie requirement regarding equal distribution but goes further into assessing whether any plan of reorganization is fair and equitable as between classes of creditors that hold claims of differing priority or secured status.[9] For the third and fourth part of the four-part inquiry—ensuring that the foreign proceedings’ actions are consistent with the U.S. policy of equality and would not prejudice an opposing party—the court provided eight factors used as indicia of procedural fairness, noting that certain factors were duplicative of considerations already discussed. The court emphasized that foreign bankruptcy proceedings need not function identically to similar proceedings in the United States to be consistent with the policy of equality.
In the Wayne Burt appeal, the Third Circuit vacated the District Court’s order finding that although there was a parallel proceeding, the District Court failed to apply the four-part test to consider the fairness of the parallel proceeding.
The Chapter 15 Case
On remand to the District Court, Wayne Burt’s liquidator renewed his motion to dismiss. Following his renewed motion, protracted discovery ensued, delaying a District Court ruling on comity.
Additionally, during the pendency of the appeal, Wayne Burt’s liquidator commenced an action in Singapore seeking that Vertiv turn over certain stock in Cetex Petrochemicals Ltd. that Wayne Burt pledged as security for a loan from Vertiv (the “Singapore Turnover Litigation”). Wayne Burt’s liquidator contended that the pledge was void against the liquidator. Vertiv did not appear in the Singapore proceedings and the High Court of Singapore entered an order requiring the turnover of the shares (the “Singapore Turnover Order”).
As a result, Wayne Burt’s liquidator shifted his strategy to obtain broader relief than what adjudicatory comity could afford in the pending U.S. litigation—recognition and enforcement of the Singapore Turnover Order. The only way to accomplish both the goal of dismissal of the U.S. litigation and enforcement of the Singapore Turnover Order is through a Chapter 15 proceeding.
On October 8, 2024, Wayne Burt’s liquidator commenced the Chapter 15 case (the “Chapter 15 Case”) by filing a petition along with the Motion for Recognition of Foreign Proceedings and Motion to Compel Turnover of Cetex Shares (the “Motion”). Vertiv opposed the Motion, contending that, under the new test laid out by the Third Circuit, the Singapore Liquidation Proceeding should not be considered the main proceeding because it may harm Vertiv.[10] Vertiv further contended that even if the Singapore Liquidation Proceeding was considered the main proceeding, the Bankruptcy Court should not “blindly” enforce the Singapore Turnover Order and should itself review the transaction to the extent it impacts assets in the United States.[11]
Less than two months after the Chapter 15 Case was commenced, the Bankruptcy Court overruled Vertiv’s objection, finding that recognition and enforcement of a turnover action was appropriate.[12] In so ruling, the Bankruptcy Court applied the new adjudicatory comity requirements set forth by the Third Circuit, in addition to Chapter 15 requirements.
The Bankruptcy Court began its analysis with finding that recognition and enforcement of the Singapore Turnover Order is appropriate under 11 U.S.C. §§ 1521 and 1507. Under Section 1521, upon recognition of a foreign proceeding, a bankruptcy court may grant any additional relief that may be available to a U.S. trustee (with limited exceptions) where necessary to effectuate the purposes of Chapter 15 and to protect the assets of the debtor or the interests of creditors. Courts have exceedingly broad discretion in determining what additional relief may be granted. Here, the Bankruptcy Court found that the Singapore insolvency system was sufficiently similar to the United States bankruptcy process.
Under Section 1507, a court may provide additional assistance in aid of a foreign proceeding as along as the court considers whether such assistance is consistent with principles of comity and will reasonably assure the fair treatment of creditors, protect claim holders in the United States from prejudice in the foreign proceeding, prevent preferential or fraudulent disposition of estate property, and distribution of proceeds occurs substantially in accordance with the order under U.S. bankruptcy law. Here, the Bankruptcy Court found that the Singapore Turnover Litigation was an effort to marshal an asset of the Wayne Burt insolvency estate for the benefit of all of Wayne Burt’s creditors and that enforcement of the Singapore Turnover Order specifically would allow for the equal treatment of all of Wayne Burt’s creditors.
Finally, the Bankruptcy Court found that recognition and enforcement of the Singapore Turnover Order was appropriate under the Third Circuit’s comity analysis. Specifically, the Bankruptcy Court found that the Singapore Turnover Litigation is parallel to the Motion, relying on the facts that: (1) Wayne Burt is a debtor in a foreign insolvency proceeding before a duly authorized tribunal, the Singapore High Court, (2) Vertiv has not challenged the Singapore High Court’s jurisdiction over the Singapore Liquidation Proceeding, and (3) the outcome of the Bankruptcy Court’s ruling would have a direct impact on the estate within the Singapore Liquidation Proceeding as it relates to ownership of the Cetex shares. The Bankruptcy Court concluded that the Singapore Liquidation Proceeding and the Chapter 15 Case are parallel.
The Bankruptcy Court’s analysis primarily focused on the third and fourth factors of the Philadelphia Gear test, determining that it was clear that the first factor was met because the Singapore Liquidation Proceeding is parallel to the Chapter 15 Case and that the second factor did not apply as there was no pending plan. The third inquiry was also satisfied for the same reasons detailed above for the Singapore insolvency laws being substantially similar to U.S. insolvency laws. The fourth inquiry—whether the party opposing comity is prejudiced by being required to participate in the foreign proceeding—was satisfied for the same reasons stated for Section 1507.
In recognizing and enforcing the Singapore Turnover Order, the Bankruptcy Court overruled Vertiv’s opposition finding it rests on an “unacceptable premise” that the Bankruptcy Court should stand in appellate review of a foreign court. Such an act would directly conflict with principles of comity and the objectives of Chapter 15. The Bankruptcy Court noted that this is especially true where the party maintains the capacity to pursue appeals and other necessary relief from the foreign court.
Vertiv appealed the Bankruptcy Court’s decision to the District Court, and the appeal is still pending.
Implications
Adjudicatory comity and Chapter 15 both aim to facilitate cooperation and coordination in cross-border insolvency cases. Indeed, Chapter 15 specifically incorporates comity and international cooperation into a court’s analysis, as Chapter 15 requires that a “court shall cooperate to the maximum extent possible with a foreign court.” In deciding whether to use adjudicatory comity and/or Chapter 15 it is important to consider the ultimate objective and the cost-benefit analysis of each approach. While seeking comity defensively in a U.S. litigation, without Chapter 15 relief, is possible, it can lead to inconsistent and unpredictable outcomes. Additionally, the multiple factors involved in applying adjudicatory comity can led to protracted discovery and, concomitantly, delaying recognition. By contrast, the Bankruptcy Court’s recent analysis demonstrates that the existing Chapter 15 framework, along with the well-established case law interpreting Chapter 15, provides an effective, reliable, and efficient tool for recognition and enforcement of foreign orders. That is particularly true, whereas here, a party seeks multiple forms of relief.
[1] Michael B. Schaedle & Evan J. Zucker, District Court Enforces German Stay, Ignoring Bankruptcy Code’s Chapter 15, 138 The Banking Law Journal 483 (LexisNexis A.S. Pratt 2021).
[2]Id.
[3]Id.
[4]Vertiv, Inc. v. Wayne Burt Pte, Ltd., No. 3:20-CV-00363, 2022 WL 17352457 (D.N.J. Nov. 30, 2022), vacated and remanded, 92 F.4th 169 (3d Cir. 2024).
[5]Vertiv, Inc. v. Wayne Burt PTE, Ltd., 92 F.4th 169 (3d Cir. 2024).
[6]Id. at 176.
[7]Philadelphia Gear Corp. v. Philadelphia Gear de Mexico, S.A., 44 F.3d 187, 194 (3d Cir. 1994)).
[8]Wayne Burt PTE, Ltd., 92 F.4th at 180.
[9]Id.
[10]See Vertiv’s Brief in Opposition to Motion for Recognition of Foreign Proceedings and Motion to Compel Turnover of Cetex Shares, Case No.: 24-196-MBK, Doc. No. 29, at 10-14 (D.N.J October 29, 2024).
[11]Id. at 13.
[12]In Re: Wayne Burt Pte. Ltd. (In Liquidation), Debtor., No. 24-19956 (MBK), 2024 WL 5003229 (Bankr. D.N.J. Dec. 6, 2024).
Weekly Bankruptcy Alert March 31, 2025 (For the Week Ending March 30, 2025)
Covering reported business bankruptcy filings in Massachusetts, Maine, New Hampshire, and Rhode Island, and Chapter 11 bankruptcy filings in New York and Delaware listing assets of more than $1 million.
Chapter 11
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
GO Lab Madison, LLC(Madison, ME)
Miscellaneous Durable Goods Merchant Wholesalers
Wilmington(DE)
$1,000,001to$10 Million
$100,000,001to$500 Million
3/25/25
GO Lab, Inc.(Madison, ME)
Not Disclosed
Wilmington(DE)
$500,001to$1 Million
$10,000,001to$50 Million
3/25/25
BLH TopCo LLC2(Addison, TX)
Restaurants and Other Eating Places
Wilmington(DE)
$1,000,001to$10 Million
$50,000,001to$100 Million
3/26/25
236 West E&P LLC(New York, NY)
Not Disclosed
Manhattan(NY)
$1,000,001to$10 Million
$1,000,001to$10 Million
3/28/25
KTRV LLC(Wilmington, DE)
Coal Mining
Wilmington(DE)
$50,000,001to$100 Million
$50,000,001to$100 Million
3/30/25
Heritage Coal & Natural Resources, LLC(Meyersdale, PA)
Coal Mining
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
3/30/25
CTN Holdings, Inc.(San Francisco, CA)
Other Financial Investment Activities
Wilmington(DE)
$50,000,001to$100 Million
$100,000,001to$500 Million
3/30/25
Catona Climate Solutions, LLC(San Francisco, CA)
Other Financial Investment Activities
Wilmington(DE)
$10,000,001to$50 Million
$10,000,001to$50 Million
3/30/25
Chapter 7
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
59 Indian Lane, LLC(Boston, MA)
Not Disclosed
Boston(MA)
$500,000,001to$1 Billion
$0to$50,000
3/25/25
OG Tile and Flooring Inc.(Everett, MA)
Not Disclosed
Boston(MA)
$0to$50,000
$50,001to$100,000
3/26/25
1Business Type information is taken from Bankruptcy Court filings, which may include incorrect categorization by the debtor or others.
2Additional affiliate filings include: BLH HoldCo LLC, BLH Acquisition Co., LLC, BLH Restaurant Franchises LLC and BLH White Marsh LLC.
Privacy Tip #437 – 23andMe Files for Bankruptcy—What to Do If It Has Your Genetic Information
Genetic testing company 23andMe has filed for Chapter 11 bankruptcy protection, and its CEO has resigned. It is seeking to sell “substantially all of its assets” through a reorganization plan that will have to be approved by a federal bankruptcy judge.
Mark Jensen, Chair and member of the Special Committee of the Board of Directors stated: “We are committed to continuing to safeguard customer data and being transparent about the management of user data going forward, and data privacy will be an important consideration in any potential transaction.” The company has also stated that the buyer must comply with applicable law in using the data.
That said, privacy professionals are concerned about the sale of the data in 23andMe’s possession, including the sensitive genetic information of over 15 million people. People often assume that the information is protected by HIPAA or the Genetic Information Nondiscrimination Act, but as my students know, neither applies to genetic information collected and used by a private company. State laws may apply, and consumers could be offered the ability to request the deletion of their data.
The company has said that customers can delete their data and terminate their accounts. The California Attorney General “urgently” suggests that consumers request the deletion of their data and destruction of the genetic materials in its possession and offers a step-by-step guide on how to do so.
Apparently, so many people have followed the suggestion that the 23andMe website crashed. The site is now back up and running, so 23andMe customers may wish to log in and request the deletion of their data and termination of their accounts.
HMRC Supports a UK Restructuring Plan with its Change in Approach – Good News for Future RPs?
You may have read our previous blog about the Outside Clinic Restructuring Plan (RP) which asked whether 5p was enough to cram down HMRC and thought, well surely if that’s not enough, 10p would work? The Enzen Restructuring Plans (RPs) that were sanctioned this week also sought to compromise HMRC’s secondary preferential debt proposing a payment that would see HMRC recover 10p in the £ compared to nil in the relevant alternative. The Enzen RPs were not only sanctioned but also supported by HMRC – does this signal a change in attitude by HMRC?
In 2022 and 2023 we saw a number of RPs seeking to compromise HMRC secondary preferential debt in one way or another, and HMRC opposing those. Their reasons for not supporting often centered around the fact that HMRC is an involuntary creditor and that it has preferential status (in respect of certain of its debts) in an insolvency and therefore should be treated differently to other unsecured creditors in an RP.
The risk of HMRC challenge seemed to dissuade many (at least in the mid-market) from using the RP as a tool to restructure after plans proposed by the Great Annual Savings (GAS), Nasmyth and Prezzo were all opposed by HMRC. It was following those cases that HMRC then issued guidance outlining its expectations. Other RPs that have involved HMRC debt included Fitness First where HMRC’s debt was rescheduled, rather than compromised, and Clinton Cards, where HMRC’s debt also remained intact. It is perhaps not therefore surprising we haven’t seen many “HMRC” RPs since these due to the risk (and not to mention the cost) of a potential challenge from HMRC.
The Enzen RPs therefore seem to signal a change in attitude by HMRC who, for the first time, positively supported the plans. But why the change?
There were two plans proposed by Enzen entities, (Enzen Global Limited (EGL) and Enzen Limited (EL). HMRC was owed £5,286,674 by EGL in respect of preferential debts, and £4,319,890 by EL.
The EGL plan proposed to pay HMRC £250,000 in cash, equivalent to a return of 4.2p in the £ compared to 0.1p in the relevant alternative (in this case administration). Under the EL plan HMRC was also to receive a £250,000 cash payment resulting in a return of 5.6p in the £ compared to nil in the relevant alternative – which would also be administration. Essentially HMRC would receive a payment of approximately 10p in the £ under both plans.
Certain other preferential debts (VAT, NIC and PAYE) which were being paid when they fell due, were treated as critical payments under the RPs so were not compromised.
Although HMRC made noises at the convening stage suggesting that it might oppose the RPs there was no indication as to the basis on which it would do so. At this point HMRC’s position was governed by the fact that it hadn’t had enough time to consider its stance ahead of the convening hearing, given the substantial amount of material they had to review.
Between the convening hearing and sanction, HMRC raised its concerns in correspondence with the plan companies (although there is no specific detail about those concerns) save that they highlighted:
that the court should not cram down HMRC without good reason (following Naysmyth)
HMRC has a critical public function, and its views should carry considerable weight (following GAS).
Following this HMRC negotiated an additional £100,000 payment from both EGL and EL which increased its returns under the RPs to 6.6p under the EGL plan and to 8.1p under the EL plan. On that basis HMRC voted in favour of the RPs.
At the sanction hearing HMRC made their position on the RP clear and made the following statements indicating a new approach:
HMRC told the court that they knew they had opposed plans in the past (referencing Naysmith and GAS in particular), but they wanted their stance to the Enzen plan to prove indicative of a more proactive approach in relation to RPs.
HMRC also made it clear it is looking to participate as fully as possible with RPs where it can in the future.
The main reason HMRC supported in this case was because of the increased payment EML and EL were willing to give them, which meant there was a material increase to them.
There are at least two more plans that are coming before the court for sanction soon – Outside Clinic and Capricorn – that include an element of HMRC debt. Following the Enzen RPs it will be interesting to see, in light of HMRC’s positive engagement on Enzen, whether HMRC will support those.
The Enzen RPs will no doubt spark interest from the mid-market given HMRC’s stance to date has arguably been a blocker on mid-market RPs, but the costs of tabling an RP are still likely to be a concern given the litigious nature of many. Also if it is HMRC’s policy to now participate in restructuring plan hearings (even if they support) who bears those costs?
Annabelle McKeeve also contributed to this article.
(UK) The Issue With Hybrid Insolvency Claims Rumbles On
Should a claim be struck out where the applicant has failed to comply with the procedural requirements relating to “hybrid” claims? In the recent case of Park Regis Birmingham LLP [2025] EWHC 139 (ch), the High Court held that it would be disproportionate to strike out the claim on that basis.
Hybrid Claims
Hybrid claims are those that include claims under the insolvency legislation (e.g. “transaction avoidance” claims), as well as company claims (e.g. unlawful dividends or sums owing under a director’s loan account). Previously, it was common practice for such claims to be issued as a single insolvency act application, rather than as a Part 7 claim.
Since the Manolete Partners plc v Hayward and Barrett Holdings case in 2021, applicants have been required to issue these claims separately, with the insolvency claims being issued as an insolvency application, and the company claims being issued as a separate Part 7 claim. The applicant can then issue an application to request that the separate proceedings are managed together e.g. at a single trial. This has meant that the costs of issuing such claims have increased, as the issue fee for a Part 7 claim can be up to £10,000, whereas the issue fee for an insolvency application is £308.
Facts
In the Park Regis case, the applicants had incorrectly issued a hybrid claim as a single insolvency application, without issuing the separate Part 7 claim for the company claims. However, when issuing the application, the applicant’s lawyers had informed the Court that the issue fee for the application would be £10,000, as the claim was a hybrid claim, and therefore the £10,000 fee was paid.
The respondents applied to strike the claim out, on the basis that the applicant had failed to comply with the Hayward and Barrett Holdings case and argued that the applicant’s approach constituted an abuse of process.
The judge held that the applicant had failed to comply with the procedural requirements regarding hybrid claims. However, in exercising her discretion about whether to strike out the claim, the judge held that striking out the claim would be too severe a penalty for that failure. The judge therefore exercised her discretion (under CPR 3.10) to waive the procedural defect and allowed the claim to proceed as if it had been properly issued.
Commentary
While the judge in this case declined to strike out the claim, the judge was clear that the applicant’s attempt to issue the claim by way of a single insolvency application, but paying the higher Part 7 issue fee, was procedurally incorrect. Had this approach been endorsed it would have made issuing such applications more straightforward for practitioners, but the judge noted the absolute requirement for separate proceedings.
We understand that this decision has been appealed – so watch this space for further comment. In the interim practitioners should continue to apply the Hayward and Barrett Holdings approach and issue two sets of proceedings to avoid the risk of a claim being struck out. Although the procedural defect was waived in this case, the power to do that is a discretionary one!
The Insolvency Service in the First Review of the Insolvency Rules has reported that they are considering whether an amendment to the Rules is required to address the Hayward and Barrett Holdings case which would hopefully see a return to previous practice – one set of proceedings with one court fee. But to date there has been no indication from the Insolvency Service when (if) they will progress that and unless further clarity is provided on appeal it seems the sensible approach for practitioners is to follow Hayward when pursuing a claim.
Board of Directors 101: Roles, Responsibilities, and Best Practices
Serving on a board of directors is a pivotal role in corporate governance, demanding a clear understanding of legal and financial responsibilities. This article delves into the core functions of a board, the fiduciary duties of its members, and the distinctions between fiduciary and advisory boards.
Understanding the Board of Directors
A board of directors serves as a corporation’s governing body, representing shareholders and overseeing the organization’s management. Jonathan Friedland, a corporate partner with Much Shelist PC, notes that the board’s primary functions include providing strategic direction, ensuring legal compliance, and upholding ethical standards.
Boards are typically composed of:
Inside Directors: Individuals who are part of the company’s management, such as executives or major shareholders.
Outside Directors: Independent members who are not involved in daily operations, offering unbiased perspectives.
In public companies, boards are mandated by law and must adhere to stringent compliance and financial disclosure requirements. Private companies, while not always legally required to have a board, often establish one to benefit from external expertise and governance.
The Purpose and Responsibilities of the Board
Allan Grafman highlights that an effective board transcends mere oversight; it actively shapes the company’s trajectory.
Key responsibilities include:
Strategic Oversight: Guiding long-term planning and ensuring alignment with the company’s mission.
CEO Supervision: Appointing, evaluating, and, if necessary, replacing the Chief Executive Officer.
Succession Planning: Preparing for future leadership transitions to maintain organizational stability.
Legal and Ethical Compliance: Ensuring adherence to laws and ethical standards to mitigate risks.
For public companies, these duties are underscored by regulations such as the Sarbanes-Oxley Act, which mandates accurate financial reporting and internal controls. Private companies, though subject to fewer regulations, must still navigate complex governance landscapes, balancing the interests of various stakeholders.
Fiduciary Duties of Board Members
Board members are bound by fiduciary duties, which are legal obligations to act in the best interests of the corporation and its shareholders.
These duties encompass:
Duty of Care: Directors must make informed decisions with the diligence that a reasonably prudent person would exercise in similar circumstances. This involves staying informed about the company’s operations and relevant market conditions.
Duty of Loyalty: Directors are required to prioritize the corporation’s interests above personal gains, avoiding conflicts of interest. This means refraining from engaging in activities that could harm the company or benefit them at the company’s expense.
The Business Judgment Rule offers directors protection, presuming that decisions are made in good faith and with due care. However, this presumption can be challenged if there is evidence of gross negligence or self-dealing. In such cases, courts may apply the Entire Fairness Doctrine, requiring directors to prove that their actions were entirely fair to the corporation and its shareholders.
Fiduciary vs. Advisory Boards
David Spitulnik notes that fiduciary and advisory boards are distinct in role and authority.
Fiduciary and advisory boards differ in the following key ways:
Fiduciary Boards
Legal Obligation: Hold legal responsibilities and are accountable to shareholders.
Decision-Making Authority: Empowered to make binding decisions, including hiring and firing executives.
Regulatory Compliance: Must adhere to corporate governance laws and regulations.
Advisory Boards
Non-Binding Guidance: Offer strategic advice without the authority to make final decisions.
Flexibility: Provide insights on specific issues, such as market expansion or product development.
No Legal Liability: Generally not subject to the same legal obligations as fiduciary boards.
For private companies, advisory boards can be useful in providing expertise and mentorship without the formalities and liabilities associated with fiduciary boards.
Qualities of Effective Board Members
Alex Sharpe emphasizes that board members should have the requisite skills.
Exceptional board members will possess a combination of attributes:
Financial Acumen: A strong grasp of financial statements and the ability to assess the company’s fiscal health.
Strategic Vision: The capacity to think long-term and guide the company toward sustainable growth.
Integrity: Upholding ethical standards and fostering a culture of transparency.
Industry Expertise: Deep knowledge of the sector to provide relevant insights.
Effective Communication: The ability to articulate ideas clearly and listen actively to diverse perspectives.
Spitulnik adds that meticulous preparation, such as reviewing materials in advance and taking detailed notes during meetings, enhances a director’s effectiveness and demonstrates commitment.
Compensating Board Members
Compensation for board members varies based on the company’s size, industry, and resources. While some private companies may not offer monetary compensation, providing equity stakes or other incentives can attract and retain talented directors. Companies with revenues under $20 million often have informal advisory boards with minimal compensation, whereas larger companies may offer more substantial remuneration packages.
Common Challenges in Board Governance
Even well-structured boards can encounter pitfalls. Allan Grafman and Jonathan Friedland identify several common challenges:
Role Ambiguity: Unclear definitions of responsibilities can lead to overlaps or gaps in governance.
Inefficient Meetings: Poorly organized meetings can result in unproductive discussions and delays in decision-making. Ensuring a well-structured agenda and sticking to key priorities can improve efficiency.
Lack of Strategic Focus: Boards that concentrate solely on compliance and operational oversight may fail to provide long-term strategic guidance. A balanced approach is necessary to foster both accountability and growth.
Weak Team Dynamics: A dysfunctional board can hinder progress. Differences in opinion are natural, but a lack of mutual respect or collaboration can create gridlock. Establishing clear governance policies and encouraging open dialogue are essential.
Outdated Board Composition: The business environment is constantly evolving. Boards that fail to bring in fresh perspectives or adapt to industry shifts risk becoming ineffective. Periodic board evaluations and diversity initiatives can enhance governance.
Legal and Financial Risks Facing Boards
Board members must navigate various legal and financial risks. Failing to uphold fiduciary duties can lead to lawsuits, regulatory scrutiny, and financial losses. Understanding these risks is crucial to effective governance.
Director and Officer (D&O) Liability
Board members can be held personally liable for decisions that result in financial harm to the company or its shareholders, though the Business Judgment Rule is commonly a powerful shield. To further mitigate this risk, many companies purchase Directors and Officers (D&O) insurance, which protects individuals from personal financial losses due to lawsuits or claims against them in their capacity as board members. A director can also purchase a personal policy as additional protection.
However, D&O insurance policies do not cover fraud, criminal acts, or intentional misconduct. Board members must remain vigilant in their decision-making to avoid legal exposure.
Financial Oversight and Accountability
Strong financial governance is a cornerstone of board responsibilities. Directors must ensure accurate financial reporting, prevent fraudulent activities, and comply with regulatory requirements, though many that apply to public companies do not apply to privately owned companies.
Failing to meet these obligations can lead to SEC investigations, shareholder lawsuits, and reputational damage. Adopting internal controls, conducting regular financial audits, and requiring management accountability are essential practices for boards to prevent financial mismanagement.
Bankruptcy and Restructuring Considerations
If a company becomes financially distressed, board members must navigate complex restructuring decisions, including whether to file for Chapter 11 bankruptcy. This raises the oft-cited and equally oft-misunderstood ‘zone of insolvency.’ EDITORS’ NOTE: Read What To Do When Your Company May Be Insolvent for more information about this.
David Spitulnik explains that delaying restructuring efforts or failing to act prudently can expose board members to liability. Seeking expert legal and financial guidance is crucial when a company faces distress. Directors in financial distress must prioritize maximizing value for all stakeholders.
Best Practices for Effective Board Governance
Strong boards do more than fulfill legal requirements — they drive long-term value. Implementing best practices can significantly enhance a board’s effectiveness.
Regular Board Evaluations
Evaluating board performance through annual assessments helps identify areas for improvement.
Effective evaluations should consider:
Board composition and expertise
Meeting efficiency and decision-making processes
Director engagement and contributions
Clear Governance Policies
Establishing bylaws, conflict-of-interest policies, and codes of conduct ensures that board members adhere to best practices. Transparency in governance fosters trust among shareholders and stakeholders.
Ongoing Education and Development
Staying informed about changes in laws, financial regulations, and industry trends is essential for directors. Continuous education, such as attending governance training programs or legal briefings, ensures that board members remain effective in their roles.
Active Shareholder Engagement
For public companies, engaging with shareholders proactively helps build confidence and alignment between the board and investors. Boards that listen to shareholder concerns and maintain open communication reduce the risk of activist investor disruptions.
Conclusion
Serving on a board of directors carries significant legal, financial, and strategic responsibilities. Board members must navigate fiduciary duties, compliance requirements, financial oversight, and governance challenges while ensuring the company’s long-term success.
The best boards don’t just react to problems they anticipate them. Directors who stay informed, exercise sound judgment, and uphold ethical standards can make a lasting impact on their organizations.
Understanding these principles is essential for professionals considering board service or advising boards. A well-run board is not just a legal necessity — it is a strategic asset that drives corporate success.
To learn more about this topic view Board Of Directors Boot Camp / Roles & Responsibilities: a Primer. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested in reading other articles about the roles, structures, and duties of a board of directors.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
Who Owns the Policy vs. Who Owns the Proceeds? The Distinction Matters During Bankruptcy
One of the most important assets of a debtor’s estate in bankruptcy often is insurance purchased by the debtor before bankruptcy arises, to protect the company’s business, assets, and leaders. Insurance assets can be particularly key when the debtor’s estate faces liabilities from mass-tort suits and claims, securities and other claims relating to management of the entity before bankruptcy. However, questions often arise about who is entitled to the insurance. Is the debtor (and its trustee) entitled to recover and use the insurance? Or, under the terms of the relevant insurance policy, or policies, are others entitled to payments owed by the insurance?
In addressing these issues, bankruptcy courts often have distinguished between ownership of the policy itself and, under the terms of the policy, the insureds who are entitled to the benefit of the “insurance proceeds.” This issue typically arises with regard to liability insurance and can arise with regard to a variety of types of liability coverages, including commercial general liability (CGL) and directors and officers (D&O) liability coverage. First-party insurance, in contrast, applies to protect assets and exposures of the company, putting it outside of the reach of this issue of ownership of insurance-policy proceeds.
Thus, during bankruptcy, litigation may arise about who owns the insurance policy and who owns, or is entitled to payment of, the policy’s “proceeds.” Determining whether the proceeds from a liability insurance policy often turns on interpretation of policy provisions which, when analyzed, are relevant to resolution of this issue and, thus, present classic insurance-coverage issues. D&O policies typically purchased by companies often present challenging questions because they provide different types of coverage to different entities and individuals. A primary purpose of D&O insurance, of course, is to protect individual directors and officers of the company and other individual insureds, and the existence of such insurance helps ensure that qualified people are willing to serve on company boards and as officers (and, depending on who the D&O policy defines “insured,” as employees) of the company. Resolution of this issue depends on the nature of the liability faced and by whom, as well as numerous insurance factors, like the type of insurance and the policy language at issue.
Who Owns the Policy?
The bankruptcy estate is broadly defined to include “all legal or equitable interests of the debtor in property as of the commencement of the case.”[1] Courts generally consider a debtor’s insurance policy as part of the estate. However, owning the policy as an asset does not automatically determine who receives the proceeds. The key question typically addressed by bankruptcy courts is “whether the debtor would have a right to receive and keep those proceeds when the insurer paid on a claim.”[2] If “the debtor has no legally cognizable claim to the insurance proceeds, [then] those proceeds are not part of the estate.”[3] This inquiry often depends on the nature of the policy and the specific provisions governing the parties’ interests in the payment of policy proceeds. Ultimately, whether the policy proceeds are considered part of the bankruptcy estate depends on the type of policy and who was intended under the insurance policy to benefit from it. Consequently, most courts distinguish between the insurance policies themselves and the proceeds from those policies.
Who Owns the Proceeds?
Whether insurance policy proceeds are considered property of the debtor’s estate depends on who is entitled to the proceeds when the insurer pays the claim. Generally, insurance proceeds paid directly to a debtor are deemed property of the estate. Examples of these “first party” coverages include collision, life, and fire policies where the debtor is the beneficiary. If the proceeds from these policies are payable to the debtor rather than a third party, they are recognized as property of the estate.[4] Conversely, policy proceeds are not considered property of the debtor’s estate when they are not payable to the debtor.[5]
Who Owns D&O Policy Proceeds?
The question often arises in the context of D&O insurance, which is designed to protect individual directors, officers, and other individual insureds; and, under many policies, the debtor company itself against securities claims, fiduciary breach claims, and other similar claims. Indeed, D&O insurance provides its most important protection during bankruptcy, as the debtor company’s ability to indemnify individual insureds may be impaired due to financial constraints or prohibited by bankruptcy law.
D&O insurance policies typically offer three types of coverage:
Side A: Covers losses arising from claims against individual directors and officers that is not indemnified by the company, either by reason of insolvency or because the company is not permitted to indemnify.
Side B: Reimburses the company indemnification paid on behalf of individual directors and officers arising from claims against those individuals.
Side C: Provides direct coverage to the company for securities claims and sometimes some other kinds of claims.
Generally, D&O policy proceeds are not considered property of the debtor’s estate if they benefit only the directors, officers, and individual insureds (e.g., Side A coverage only). Courts have also found that, because the debtor did not have a “direct interest” in Side A or Side B coverage proceeds, those proceeds were not property of the estate.[6]
Other courts have determined that Side B proceeds can be considered property of the debtor if the coverage limits have been or could be depleted by indemnification requests, potentially leaving the company without coverage for future indemnification demands. These courts have found that Side B insurance proceeds were property of the estate.[7] However, if the covered indemnification “has not occurred, is hypothetical, or speculative,” courts may find that the policy proceeds are not property of the estate.[8]
With respect to Side C coverage, courts have found that policy proceeds from entity coverage are property of the estate.[9] This is not surprising because the debtor can easily be said to have an interest in the proceeds as an insured under the policy. Other courts have taken a broader view, asserting that a bankruptcy estate includes any assets that enhance the value of the Estate. Thus, as long as the policy includes Side B or Side C coverage, the policy proceeds meet the “fundamental test” because the bankruptcy estate is worth more with the insurance policy than without it.[10]
Trustees Can’t Settle Company’s Lawsuit Against Former CEO
One recent decision from the U.S. Court of Appeals for the Fourth Circuit, In re Levine, No. 23-1349, 2025 WL 610303 (4th Cir. Feb. 26, 2025), shows how disputes about ownership and control of D&O insurance claims can play out in practice. Levine involved a “tale of two bankruptcies and two adversary actions,” where the Fourth Circuit ruled that the separate bankruptcy trustees for a debtor company and its former CEO could not settle the company’s fraud claims against the CEO using insurance proceeds from a D&O policy purchased by the company before bankruptcy.[11] In affirming dismissal of an adversary declaratory action addressing this issue on jurisdictional grounds, the Fourth Circuit offered insightful commentary on the purpose and intent of D&O liability policies and their treatment in bankruptcy proceedings.
First, the company’s purchase of the D&O policy did not grant the company “first-party” status or standing to sue. The policy was “activated,” the Fourth Circuit concluded, because the company sued the CEO. In that scenario, only the CEO was considered an insured under the policy, not the company.
Second, the trustee sought to recover defense costs in the adversary proceeding against the CEO for fraud. The trustee tried to leverage the “wasting” policy—namely, that defense costs were eroding the policy’s available limits—to support his standing argument. The court ruled that the trustee’s “fear” was not enough.
Third, while the insurance policy itself could be considered an asset of the estate, according to the Fourth Circuit, courts “routinely” find that, when a D&O policy provides direct coverage to the directors and officers (as was the case here), the policy proceeds are not considered property of the debtor company’s estate.
Ultimately, the court emphasized that the purpose of D&O coverage is to protect individuals, like the CEO, from incurring liability as directors and officers of the debtor and to ensure that potential losses incurred as a result of their service in such capacities remain separate from their personal finances. Consequently, courts “regularly” recognize that the benefits provided to these individuals by D&O policies “cannot be stripped from them by a bankruptcy trustee.” As a result, the trustee had no claim to the right of consent to settlement under the policy.
Conclusion
The Fourth Circuit’s decision underscores the importance of Side A coverage to protect directors, officers, and individual insureds when an insolvent company is unable or unwilling to indemnify them for the defense costs and potential liability they face due to their service to the company.
In case of bankruptcy, Side A D&O coverage may be the only protection standing between an individual director or officer and personal exposure. For that reason, preserving scarce insurance limits for the benefit of individual insureds is paramount. This can be accomplished in a number of ways. The simplest perhaps is just buying more insurance in the form of higher limits in the company’s existing “Side ABC” policy covering both the company and its directors and officers. Another pathway is to purchase “dedicated” Side A-only limits, which can be used exclusively to protect individuals when the company is unable or unwilling to indemnify them or advance their legal fees and costs.
Side A-only limits are often provided automatically or with payment of additional premium in existing D&O policy forms, but often times they are better secured in entirely separate, standalone policies. Those standalone policies often provide other benefits, like fewer exclusions, more coverage, and better terms no available under traditional Side ABC forms. Working closely with experienced risk professionals, including insurance brokers, consultants, and outside coverage counsel can help companies place, renew, and modify insurance programs with an eye towards providing effective protection for insured executives that responds as expected at the point of claim. While insurance considerations are important during bankruptcy proceedings, the best time to start ensuring the effectiveness of insurance protection is long before insolvency arises.
[1] 11 U.S.C. § 541(a).
[2] Houston v. Edgeworth (In re Edgeworth ), 993 F.2d 51, 55 (5th Cir. 1993).
[3] Id. at 56.
[4] In re Endoscopy Ctr. of S. Nevada, LLC, 451 B.R. 527, 544 (Bankr. D. Nev. 2011).
[5] In re Allied Digital Techs., Corp., 306 B.R. 505, 512 (Bankr. D. Del. 2004).
[6] See, e.g., In re Youngstown Osteopathic Hosp. Ass’n, 271 B.R. 544, 548-550 (Bankr. N.D. Ohio 2002).
[7] In re Leslie Fay Cos., Inc., 207 B.R. 764, 785 (Bankr. S.D.N.Y. 1997).
[8] In re Allied Digital Techs. Corp., 306 B.R. 505, 512 (Bankr. D. Del. 2004).
[9] In re Sacred Heart Hosp. of Norristown, 182 B.R. 413, 420 (Bankr. E.D. Pa. 1995).
[10] Circle K Corp. v. Marks (In re Circle K Corp.), 121 B.R. 257 (Bankr. D. Ariz. 1990).
[11] In re Levine, No. 23-1349, 2025 WL 610303 (4th Cir. Feb. 26, 2025).