Bankruptcy & Restructuring – Page 3

Weekly Bankruptcy Alert April 14, 2025 (For the Week Ending April 13, 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

Best Choice Trucking, LLC(Dedham, MA)
Not Disclosed
Boston(MA)
$1,000,001to$10 Million
$1,000,001to$10 Million
4/7/25

Tallulah’s Taqueria, LLC(Providence, RI)
Restaurants and Other Eating Places
Providence(RI)
$50,001to$100,000
$1,000,001to$10 Million
4/7/25

Solid Financial Technologies, Inc.(Palo Alto, CA)
Not Disclosed
Wilmington(DE)
$1,000,001to$10 Million
$1,000,001to$10 Million
4/7/25

40 Starr Lane LLC(Warren, RI)
Not Disclosed
Providence(RI)
$1,000,001to$10 Million
$1,000,001to$10 Million
4/8/25

Royal Interco, LLC(Phoenix, AZ
Converted Paper Product Manufacturing
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
4/8/25

Sun Paper Company, LLC(Duncan, SC)
Converted Paper Product Manufacturing
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
4/8/25

Royal Paper Converting, LLC(Phoenix, AZ)
Converted Paper Product Manufacturing
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
4/8/25

Doubletree Paper Mills, LLC(Gila Bend, AZ)
Converted Paper Product Manufacturing
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
4/8/25

Publishers Clearing House LLC(New York, NY)
Other Professional, Scientific and Technical Services
Manhattan(NY)
$1,000,001to$10 Million
$50,000,001to$100 Million
4/9/25

Colonial Mills, Inc.(Rumford, RI)
Textile Furnishings Mills
Providence(RI)
$0to$50,000
$100,001to$500,000
4/9/25

Annalee Dolls, LLC(Meredith, NH)
Not Disclosed
Concord(NH)
$1,000,001to$10 Million
$1,000,001to$10 Million
4/11/25

Deqser LLC(Kearny, NJ)
Management of Companies and Enterprises
Wilmington(DE)
$1,000,001to$10 Million
$1,000,001to$10 Million
4/10/25

KNY 26671 LLC(Kearny, NJ)
Drycleaning and Laundry Services
Wilmington(DE)
$10,000,001to$50 Million
$10,000,001to$50 Million
4/10/25

180 La Pata 2020, LLC(San Clemente, CA)
Not Disclosed
Wilmington(DE)
$1,000,001to$10 Million
$50,000,001to$100 Million
4/11/25

Chapter 7

Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate

Bancroft Holding LLC(Lancaster, MA)
Not Disclosed
Worcester(MA)
$50,001to$100,000
$1,000,001to$10 Million
4/7/25

Innovation Studio, Inc.(Roxbury, MA)
Other Schools and Instruction
Boston(MA)
$0to$50,000
$500,001to$1 Million
4/8/25

Martell Diagnostic Laboratories, Inc.(Natick, MA)
Scientific Research and Development Services
Boston(MA)
$0to$50,000
$1,000,001to$10 Million
4/8/25

1Business Type information is taken from Bankruptcy Court filings, which may include incorrect categorization by the debtor or others.

Navigating Ethical and Legal Complexities in Insider Lease Agreements in the Context of Bankruptcy

Insider lease agreements, where a property owner leases assets to a related entity, are prevalent in real estate-based businesses. While these arrangements can offer tax advantages and liability protections, they also present intricate ethical and legal challenges, particularly in bankruptcy scenarios. This article delves into the nuances of insider lease agreements in the context of bankruptcy exploring ethical considerations, and providing best practices for attorneys and business owners.
Definition of ‘Insider’
Bankruptcy Code Section 101(31) defines an ‘insider’ to include relatives, general partners, and directors or officers of the debtor. Understanding this designation is critical, as insider transactions face heightened scrutiny and potential challenges from creditors and trustees.
David Levy, managing director at Keen-Summit Capital Partners, points out that courts apply various non-statutory tests to determine whether a party is an ‘insider’ in a lease agreement. He explains that factors like control, closeness of relationships, and financial influence are key indicators that could lead to heightened scrutiny in bankruptcy cases.
Understanding Insider Lease Agreements
An insider lease agreement occurs when a business owner leases property to a related entity, such as a subsidiary or an entity under common ownership. This structure can be advantageous, allowing for tax deductions and asset protection.
However, it can also create conflicts of interest, especially if the lease terms are not established at fair market value or if the arrangement favors insiders over creditors. Matt Christensen, Managing Partner at Johnson May, notes that insider lease agreements can significantly impact bankruptcy avoidance actions.
True Lease vs. Disguised Financing
It’s crucial to distinguish between a ‘true lease’ and a ‘disguised financing arrangement.’ A true lease involves the lessor retaining ownership of the asset, with the lessee having the right to use it for a specified period. In contrast, a disguised financing arrangement, though labeled as a lease, functions as a secured transaction where the lessee effectively owns the asset and the ‘lease’ serves as collateral for a loan.
Courts scrutinize the substance over form to determine the true nature of the agreement. For instance, a court might recharacterize lease agreements as security agreements based on factors like the lessee’s lack of termination rights and nominal purchase options.
Jonathan Aberman, partner at Troutman Pepper Locke, stresses that courts review insider transactions more rigorously in bankruptcy cases. He advises that ensuring fair market value and independent oversight in lease agreements is crucial to avoiding claims of self-dealing.
Fair Market Value (FMV) vs. Residual Value
Fair Market Value refers to the price at which an asset would change hands between a willing buyer and seller, neither under compulsion and where both have reasonable knowledge of relevant facts. Ensuring that lease terms reflect FMV is vital to prevent allegations of preferential treatment or fraudulent conveyance, especially in insider transactions.
Residual value is the estimated worth of a leased asset at the end of the lease term. Lessees may have options to purchase the asset at this value. Accurate estimation is essential to avoid disputes and ensure compliance with tax regulations.
Lease Provisions
Most leases have certain provisions in place to ensure that the lessor is protected in the event of bankruptcy or other unforeseen circumstances. Below are some common provisions and clauses included in leases:

Hell-or-High-Water Clauses: This clause stipulates that the lessee’s obligation to make payments is absolute and unconditional, regardless of any difficulties encountered. Such provisions are common in equipment leases to protect the lessor’s revenue stream.
Force Majeure Clauses: A Force Majeure Clause excuses parties from performance obligations due to extraordinary events beyond their control, such as natural disasters or government actions. The applicability of this clause depends on its specific wording and the unforeseen nature of the event. For example, during the COVID-19 pandemic, courts examined whether government-imposed restrictions triggered force majeure clauses in lease agreements.
Purchase Options: A Purchase Option grants the lessee the right to buy the leased asset at the end of the lease term, often at FMV or a predetermined price. The specifics of this option can influence the lease’s classification for accounting and tax purposes.
Maintenance and Return Conditions: Lease agreements typically require the lessee to maintain the asset in good condition and specify the state in which it must be returned. These terms protect the lessor’s residual interest and ensure the asset’s value is preserved.
Indemnity Provisions: Indemnity clauses obligate one party to compensate the other for certain losses or damages. In leases, lessees often indemnify lessors against liabilities arising from the asset’s use, mitigating the lessor’s risk exposure.

Ethical Considerations
Insider lease agreements raise myriad ethical considerations for the parties involved.
Conflicts of Interest
Insider lease agreements inherently risk conflicts of interest. Attorneys must ensure that such arrangements are transparent and that all parties provide informed consent. ABA Model Rule 1.7 addresses conflicts of interest, emphasizing the necessity for clear client relationships and the avoidance of representing parties with opposing interests within the same transaction.
Duty of Candor
Attorneys also have an ethical obligation to be truthful in dealings with tribunals and opposing parties. This duty is paramount when presenting insider lease agreements in legal proceedings, ensuring that all material facts are disclosed. ABA Model Rules 3.3 and 3.4 outline these responsibilities.
Transparency and Fair Dealing
Full disclosure of insider relationships and lease terms is essential to prevent legal disputes and uphold ethical standards. This transparency ensures that all parties, including creditors, are aware of potential conflicts and can assess the fairness of the transaction.
Samantha Ruben of Dentons’ Restructuring Insolvency and Bankruptcy practice points out that ethical considerations in insider leases can arise when fiduciaries prioritize personal interests over the business entity. She explains that in a distressed situation, these transactions may face higher levels of scrutiny and disclosure from the get-go can be key.
Conclusion
Insider lease agreements, while beneficial in certain circumstances, must be handled with care to avoid ethical and legal pitfalls. By adhering to best practices, ensuring transparency, and complying with legal standards, attorneys and business professionals can mitigate risks and uphold ethical integrity in real estate transactions.

To learn more about this topic view Ethical Issues In Real Estate-Based Bankruptcies / Insider Lease Agreements. 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 to read other articles about real estate-focused bankruptcy cases.
This article was originally published on here.
©2025. DailyDACTM. This article is subject to the disclaimers found here.

Buying Assets in Bankruptcy: Opportunities, Risks, and Strategies

Introduction
Acquiring assets from a bankrupt company presents unique opportunities for investors, business owners, and legal professionals. Understanding the intricacies of a Section 363 sale process, the role of a stalking horse bidder, and the dynamics of bankruptcy sales is crucial for navigating these complex transactions successfully.
What Makes Bankruptcy Asset Sales Unique?
Section 363 of the US Bankruptcy Code allows a debtor (the company or person in bankruptcy) to sell assets outside the ordinary course of business, typically through a court-approved auction process. This mechanism enables the sale of assets “free and clear” of existing liens, claims, and encumbrances, providing buyers with a clean title.
The section 363 sale process is a public auction. The debtor must market the assets and sell them through a court-approved auction process.
This process benefits buyers by offering:

Expedited Transactions: Bankruptcy courts often prioritize swift asset sales to maximize value and reduce administrative expenses.
Transparency: The auction process’s public nature ensures that all interested parties have access to information, promoting fair competition.
Legal Protections: Court approval of the sale minimizes the risk of future disputes over asset ownership.

However, potential buyers must conduct thorough due diligence to understand the specific terms and any possible exceptions that might affect the sale.
Benefits of Buying Assets in Bankruptcy
Purchasing assets through a bankruptcy sale can offer several advantages:

Discounted Asset Prices: Assets are often sold at reduced prices due to the distressed nature of the sale.
Acquisition Free of Liens: Buyers can acquire assets free and clear of most prior claims. James Sullivan, partner at Seyfarth Shaw, notes that assets bought out of bankruptcy are often priced lower than when purchased through a typical M&A transaction and are acquired free and clear of virtually all liens, claims, and interests burdening the assets.
Court-Supervised Process: The involvement of the bankruptcy court provides a structured environment, reducing the risk of undisclosed liabilities.
Opportunity for Strategic Expansion: Buyers can acquire valuable assets, intellectual property, or business units that align with their strategic goals.

The Role of the Stalking Horse Bidder
A stalking horse bidder is an initial bidder chosen by the debtor to set the baseline bid for the assets. This arrangement establishes a minimum price, encouraging other potential buyers to participate in the auction. The stalking horse bidder often negotiates certain protections, such as break-up fees, to compensate for the risks associated with being the initial bidder.
Often in section 363 sales, there will be an initial ‘stalking horse’ bidder that will perform the initial due diligence on the assets to be sold and enter into an asset purchase agreement with the debtor for the sale of the property, subject to the possibility of higher and better offers being accepted at the auction.
Break-up fees are payments made to the stalking horse bidder if another bidder wins the auction. These fees compensate the initial bidder for the time and resources invested in setting the floor price. The debtor and the stalking horse bidder negotiate these bid procedures and may seek and receive input from others, including secured creditors. Richard Corbi of Corbi Law notes that a bidder might not win the assets despite all their upfront effort if the auction gets competitive.
The Auction Process & Competitive Bidding
The auction process in a bankruptcy sale is designed to maximize the value of the debtor’s assets. Key steps include:

Bid Procedures Approval: The debtor proposes bidding procedures, which must be approved by the bankruptcy court. These procedures outline the requirements for potential bidders and the rules governing the auction.
Marketing the Assets: The debtor markets the assets to attract potential buyers, providing necessary information to facilitate due diligence.
Submission of Qualified Bids: Interested parties submit bids that comply with the approved procedures by a specified deadline.
Auction Conducted: If multiple qualified bids are received, an auction is held where bidders can increase their offers competitively.
Selection of Winning Bid: The debtor, in consultation with creditors and subject to court approval, selects the highest and best offer, considering factors beyond just the purchase price.
Court Approval: A sale hearing is conducted where the court reviews the process and approves the sale to the winning bidder.
Closing the Sale: Following court approval, the transaction is finalized, and the assets are transferred to the buyer.

It’s important to note that the ‘highest and best’ offer isn’t solely determined by the monetary value. Cliff Katz explains that other considerations include the ability to close promptly, contingencies, and the impact on stakeholders.
Risks and Challenges of Bankruptcy Sales
While bankruptcy asset purchases offer attractive opportunities, they come with inherent risks:

Due Diligence Constraints: The expedited nature of bankruptcy sales can limit the time available for thorough due diligence.
Potential for Overbidding: Competitive auctions may drive prices higher than anticipated, potentially reducing the expected value proposition.
Regulatory Approvals: Certain transactions may require approvals from regulatory bodies, which can introduce delays or complications.
Successor Liability Concerns: Although assets are sold free and clear, certain liabilities, such as environmental obligations or union contracts, may transfer to the buyer under specific circumstances.
Financing Challenges: Securing financing for distressed assets can be more complex, requiring lenders to be familiar with bankruptcy processes.

Jonathan Friedland explains that potential buyers of distressed companies often have the ability to influence whether the target company files bankruptcy at all, “Bankruptcy is just one tool among many that are available to a financially distressed company, and many transactions happen in the context of an Article 9 sale, a receivership sale, or an assignment for the benefit of creditors.” Friedland notes that “these other venues each have their relative pros and cons as compared to purchase through bankruptcy.” Editors’ Note: for more information on business bankruptcy alternatives, read Buying Operating Assets from a Distressed Seller and Dealing with Corporate Distress 18: Buying & Selling Distressed Businesses.
Private Sales in Bankruptcy
Not all bankruptcy asset sales involve public auctions. In some cases, a debtor may pursue a private sale, negotiating directly with a buyer without a competitive bidding process. This approach can be advantageous when:

Time Is of the Essence: Private sales can be faster, avoiding the time-consuming auction process.
Limited Market Interest: If the pool of potential buyers is small, a private sale may be more practical.
Confidentiality Concerns: Private negotiations can keep sensitive information out of the public domain.

However, private sales still require court approval, and the debtor must demonstrate that the sale serves the best interests of the estate and its creditors.
Special Considerations for Foreign Buyers
Foreign investors interested in acquiring US assets through bankruptcy should be aware of additional considerations:

Regulatory Compliance: Transactions may be subject to review by the Committee on Foreign Investment in the United States (CFIUS), especially if they involve sensitive industries.
Currency Exchange Risks: Fluctuations in exchange rates can impact the overall cost of the investment.
Legal Representation: Engaging US-based legal counsel is essential to navigate the complexities of the US bankruptcy system.
Tax Implications: Understanding the tax consequences in both the US and the investor’s home country is crucial for effective planning.

Conclusion: Is a Bankruptcy Purchase Right for You?
Acquiring assets through bankruptcy can be a strategic move, offering access to valuable assets at potentially discounted prices. However, it’s essential to approach such opportunities with a clear understanding of the process, associated risks, and legal implications. Engaging experienced legal and financial advisors is crucial to navigating the complexities of bankruptcy.

To learn more about this topic, view Advanced Bankruptcy Transactions / Purchasing Assets in Bankruptcy. 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 purchasing distressed assets.
This article was originally published here.
©2025. DailyDACTM, LLC. This article is subject to the disclaimers found here.

Federal Equity Receiverships: Key Concepts and Strategies

Federal equity receiverships are crucial mechanisms for addressing insolvency, fraud, and mismanagement in businesses. Because of their significance, many professionals in the legal and financial sectors should endeavor to understand the complexities and advantages of this remedy.
Understanding Federal Equity Receiverships
A federal equity receivership is a legal process wherein a court appoints a receiver to take control of a company’s assets and operations. This measure is typically employed in cases involving fraud, insolvency, or significant internal disputes. The receiver acts as a neutral fiduciary, managing the entity’s affairs under the court’s supervision to preserve assets and protect stakeholders’ interests.
Historically, receiverships have their roots in English common law and have evolved to address complex financial disputes and corporate misconduct. In the United States, federal equity receiverships are distinct from state court receiverships, primarily due to their broader jurisdictional reach. As Kelly Crawford, a partner at Scheef & Stone, highlights, a state court receiver is generally limited to the boundaries of that state, but a federal receiver can exercise control over assets nationwide.
Types of Federal Equity Receiverships
Federal equity receiverships can be divided into two categories based on their initiation:

Regulatory Receiverships: These receiverships address violations like securities fraud or Ponzi schemes and are initiated by government agencies such as the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC).
Private Litigation Receiverships: Arising from disputes among private parties — such as creditors, business partners, or shareholders — these receiverships aim to resolve issues like mismanagement or internal conflicts.

Melanie Damian of Damian, Valori, & Culmo notes that private receiverships are becoming increasingly prevalent. Lenders and business owners are using receiverships to secure assets in disputes — think business divorce.
The Role and Powers of a Receiver
Once appointed, a receiver assumes comprehensive control over the entity’s assets and operations. Their responsibilities include managing daily business activities, safeguarding assets, investigating fraudulent transfers, and, if necessary, liquidating assets to satisfy creditors.
The scope of a receiver’s authority is defined by the court order appointing them. This order delineates the receiver’s duties, powers, and the extent of their control. Given the lack of extensive statutory guidelines for federal equity receivers, the appointing order becomes the primary source of their authority.
Greg Hays of Hays Financial Consulting, a member of the National Association of Federal Equity Receivers, emphasizes that receivers’ powers can be extremely broad. They can issue subpoenas, take over management, and even initiate lawsuits on behalf of the receivership estate.
The Legal Process for Appointing a Receiver
The appointment of a receiver requires a legal proceeding in which the moving party (often a creditor, regulatory agency, or minority shareholder) petitions the court. The process typically involves the following steps:

Filing a Complaint – The party seeking a receivership must file a complaint that establishes the basis for court intervention. This may include evidence of fraud, insolvency, mismanagement, or the need to preserve assets pending litigation.
Filing a Motion for Appointment – A motion is then submitted, requesting that the court appoint a receiver. This motion is often accompanied by affidavits, financial statements, and other documentation supporting the need for receivership.
Court Hearing – In many cases, courts hold a hearing where the judge considers arguments from all parties involved. However, in emergency situations, the court may appoint a receiver ex parte, meaning without prior notice to the opposing party.
Issuance of a Court Order – If the court grants the motion, it issues an Order Appointing Receiver. This order serves as the governing document that defines the receiver’s duties, powers, and limitations.
Filing Under 28 U.S.C. § 754 – If the receivership involves assets across multiple states, the receiver must comply with 28 U.S.C. § 754, which allows the court’s jurisdiction to extend nationwide. The receiver is required to file copies of the appointment order in federal districts where assets are located within 10 days to maintain jurisdiction.
Implementation of Receivership – Once appointed, the receiver assumes control over assets, manages operations (if necessary), and carries out their duties as dictated by the court order.

Kathy Bazoian Phelps, partner at Raines Feldman LLP, explains that receivers are often appointed in various disputes, such as investor fraud cases, shareholder disputes, and commercial real estate foreclosures.
Advantages of Federal Equity Receiverships
Opting for a federal equity receivership offers several benefits over other remedies like bankruptcy, including:

Immediate Intervention: Receiverships can be granted ex parte — without prior notice — allowing for swift action to control and preserve assets.
Asset Protection: The receiver can promptly freeze bank accounts, secure records, and prevent further dissipation or misappropriation of assets.
Flexibility: Unlike bankruptcy, which operates under a rigid statutory framework, receiverships are equitable remedies tailored to the specific circumstances of each case.
Cost Efficiency: Bankruptcy proceedings often entail significant administrative expenses and involve multiple professionals. Receiverships tend to be more streamlined, potentially reducing costs.
Confidentiality: Receiverships generally attract less public attention than bankruptcy filings, helping to protect the entity’s reputation.

A receivership can immediately eliminate bad management by placing the company under the supervision of the Court.
Challenges and Limitations of Receiverships
While receiverships offer a powerful tool for asset management and recovery, they are not without challenges, including:

Limited Statutory Guidance – Unlike bankruptcy, which has a detailed legal framework under the US Bankruptcy Code, receiverships rely primarily on judicial discretion. This can lead to inconsistencies in how cases are handled.
Potential for Court Challenges – Affected parties, such as business owners or defendants, may challenge the receivership appointment, arguing that it is unnecessary or excessive.
Receiver Compensation – Receivers and their legal teams must be compensated from the assets under administration. If assets are insufficient, creditors may have to cover these costs, reducing their ultimate recovery.
Overlap with Bankruptcy Proceedings – If a bankruptcy petition is filed, the receivership may be overridden by the automatic stay under 11 U.S.C. § 362, disrupting the receiver’s control.

Federal Equity Receivership vs. Bankruptcy
While both receiverships and bankruptcy address financial distress, they differ in several key aspects, as outlined in the following table:

Aspect
Receivership
Bankruptcy

Initiation
Typically initiated by creditors or regulatory agencies through a court-appointed process.
Initiated by the debtor filing a petition for relief under the Bankruptcy Code.

Management Control
A court-appointed receiver takes over management, displacing existing leadership.
Existing management often remains in control as a ‘debtor-in-possession,’ especially in Chapter 11 cases.

Legal Framework
Governed by equitable principles and tailored court orders, offering flexibility.
Governed by the Bankruptcy Code, which provides a structured and uniform process.

Scope of Authority
Receiver’s powers are defined by the appointing court and can be broad, including asset liquidation and litigation.
Bankruptcy trustees have defined statutory powers, with actions subject to court approval.

Duration and Cost
Potentially quicker and more cost-effective due to streamlined procedures.
Can be lengthy and expensive, involving extensive court proceedings and professional fees.

Kelly Crawford notes that bankruptcy makes sense in complex reorganizations, but in cases where creditors want quick action, a receivership is often the better choice.
However, it’s essential to consider that the appointment of a receiver does not preclude bankruptcy proceedings. If a bankruptcy case is filed after the appointment of a receiver, the bankruptcy filing generally supersedes the receivership. Secured creditors should note that if a bankruptcy case is filed after the appointment of a receiver, then the filing will trump the receiver’s appointment.
Final Thoughts
Federal equity receiverships provide a flexible and effective solution for managing financially distressed businesses, preserving assets, and combatting fraud. They can serve as a powerful alternative to bankruptcy when swift intervention is required.
Receiverships allow for quick action, independent oversight, and equitable distribution of assets — often making them the best choice when bankruptcy is impractical. Whether used as a proactive measure or a recovery tool, these court-appointed roles play an essential part in ensuring fair financial resolutions.

To learn more about this topic, view the webinar Federal Equity Receiverships / Key Concepts and Strategies in Federal Receiverships. 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 receiverships.
This article was originally published here.
©2025. DailyDACTM, LLC. This article is subject to the disclaimers found here.

New Ruling Reinforces Limits on Automatic Stay Waivers

A recent decision by Bankruptcy Judge Laura Grandy in In re DJK Enterprises LLC, 24-60126 (Bankr. S.D. Ill. Feb. 13, 2025) further limits the enforceability of prepetition waivers of the automatic stay, reinforcing the trend that courts will scrutinize such waivers under bankruptcy law principles and public policy considerations. The enforcement of a prepetition waiver of the automatic stay is not automatic and requires approval from the bankruptcy court.[1] Even if deemed valid, the waiver alone does not allow the secured creditor to enforce its lien without first obtaining relief from the stay through the court.[2] This decision builds upon prior case law and highlights for lenders the risk they face when relying on pre-bankruptcy agreements to bypass the automatic stay.
Background and Key Events in In re DJK Enterprises LLC
DJK Enterprises LLC (“DJK”) is the owner and operator of a hotel and restaurant encumbered by a $10.5 million mortgage, with Effingham Asset Funding (the “Lender”) holding liens and mortgages on all of DJK’s real and personal property.[3] In addition to the liens granted in favor of the Lender, DJK is indebted to (a) the Small Business Administration (SBA) in the amount of approximately $500,000, which loan is secured with a lien against DJK’s personal property,[4] (b) Effingham County for property taxes in the amount of $243,494 secured by DJK’s real property[5] and (c) Royal Banks of Missouri (“Royal Banks”) in the amount of $13,486,879.80 secured by a lien on all DJK’s assets.[6] Although DJK did not repay the Lender in full upon maturity, it continued making payments.[7]
Prior to the bankruptcy, DJK and the Lender executed the forbearance agreement, granting DJK 75 days to pay off the mortgage.[8] As part of the forbearance agreement, DJK executed a deed in lieu of foreclosure, which was to be held in escrow.[9] If DJK failed to repay the mortgage before the termination of the forbearance period, the Lender had the right to record the deed.[10] Additionally, the agreement prohibited DJK from filing for bankruptcy before the termination of the forbearance period or within 91 days after the deed’s recording.[11] In the event DJK did file for bankruptcy and the property was deemed part of the estate, the forbearance agreement included a waiver by DJK of the protections of the automatic stay and further required DJK to consent to a modification of the automatic stay.[12]
Before the termination of the forbearance period, DJK filed for Chapter 11 bankruptcy.[13] In response, the Lender moved to enforce the forbearance agreement and sought relief from the automatic stay, arguing that DJK’s prepetition waiver should be upheld.[14]
Summary of the Court’s Decision in In re DJK Enterprises LLC

Waivers of the Automatic Stay Remain UnreliableJudge Grandy ruled that the provisions of the forbearance agreement containing a waiver of the automatic stay were per se unenforceable, emphasizing that this approach “best protects the rights and interests of the debtor-in-possession and all creditors under the Bankruptcy Code—not just those of the creditor asserting the waiver.”[15]
Public Policy Continues to Favor the Bankruptcy ProcessWhile some courts have enforced stay waivers in bad-faith filings or single-asset real estate cases,[16] Judge Grandy recognized that the “trending position” among courts is to “treat the waiver as just one of several factors to be considered in determining whether ‘cause’ exists to lift the automatic stay.”[17] She rejected the Lender’s attempt to enforce the waiver solely for its own benefit, ruling that courts must consider the broader bankruptcy framework, public policy and interests of all creditors.[18]
No Cause to Lift the StayThe court emphasized that lifting the stay must be based on statutory grounds, such as the debtor lacking equity in the property and the property not being necessary for an effective reorganization (§ 362(d)(2)), or for “cause,” including the creditor lacking adequate protection (§ 362(d)(1)).[19] In this case, the Lender failed to demonstrate that DJK’s financial condition, asset values or restructuring prospects warranted stay relief.[20] Ultimately, the court found no other independent grounds to modify the automatic stay and denied the Lender’s motion.[21]

How This Decision Builds on Prior Precedent
Courts generally approach prepetition waivers of the automatic stay in three ways: Uphold the stay waiver in broad terms, reject the stay waiver as against public policy, and, the more modern approach which is to make a determination on a case-by-case basis.[22] The In re DJK Enterprises ruling adds further weight to the anti-waiver position, suggesting that lenders should not expect automatic enforcement of such provisions, and that the automatic stay is an indispensable feature of bankruptcy law.
Some courts have upheld waivers under certain conditions, particularly when they are part of a court-approved agreement, such as a prior bankruptcy plan or stipulated order.[23] Enforcing waivers may also be justified when it aligns with public policy by promoting out-of-court settlements and loan workouts.[24] Additionally, courts are more likely to uphold a waiver if the debtor’s bankruptcy filing appears to be in bad faith, suggesting an attempt to abuse the bankruptcy process.[25]
Several courts, including the Illinois Bankruptcy Court in In re DJK Enterprises, reject prepetition waivers, arguing that they conflict with the public policy behind the automatic stay, which is designed to protect debtors and ensure equitable treatment of creditors.[26] They also contend that such waivers violate the debtor’s fiduciary duty to creditors once a bankruptcy is filed, as the debtor-in-possession must act in the best interests of all creditors, not just select lenders.[27] Additionally, courts have expressed concern that enforcing these waivers could encourage predatory lending practices by allowing creditors to bypass bankruptcy protections and gain an unfair advantage over other creditors.[28]
The final approach taken by courts, as is the modern trend acknowledged in In re DJK Enterprises,[29] neither automatically enforce nor reject waivers but instead weigh them alongside other factors in stay relief motions.[30] Common factors include, but are not limited to:

the sophistication of the debtor;
the consideration received;
the effect on other creditors;
the feasibility of reorganization;
evidence of fraud, coercion or mutual mistake;
furthering public policy; and
whether there was compelling change in circumstances between the date of the waiver and the date of the bankruptcy filing.[31]

In In re DJK Enterprises, the court ruled that prepetition waivers of the automatic stay are per se unenforceable, aligning with the reasoning in Pease, 195 B.R. 43, and In re Jeff Benfield Nursery, Inc., 565 B.R. 603 (Bankr. W.D.N.C. 2017).[32] In Pease, the court held that such waivers are unenforceable, citing three bases for invalidating the waiver: (1) the debtors did not have the capacity to act on behalf of the debtor-in-possession; (2) the waiver would limit the effectiveness of certain bankruptcy provisions such as §§ 363, 365 and 541; and (3) the Bankruptcy Code extinguishes the private right to freedom to contract around its essential provisions.[33] In Jeff Benfield Nursery, the court declined to enforce a prepetition waiver as matter of public policy, explaining that upholding these waivers deprives debtors of the “breathing spell” of the automatic stay intended by the bankruptcy code.[34]
The In re DJK Enterprises court emphasized that a prepetition debtor and a post-petition debtor-in-possession are distinct entities, and a debtor cannot waive rights that arise only after filing for bankruptcy.[35] Additionally, the court noted that enforcing the waiver would harm other creditors who were not parties to the agreement.[36] For example, in this case, DJK’s largest creditor, Royal Banks, had agreed to settle its $13 million claim for $300,000—a settlement that significantly benefited not only DJK, but other creditors. Enforcing the waiver in favor of the primary Lender, EAF, would effectively end the case, leaving Royal Banks and other creditors with nothing.[37] The court reiterated that the automatic stay exists to protect both debtors and creditors, and enforcing the waiver would unfairly benefit only EAF at the expense of all other stakeholders.[38]
The ruling in In re DJK Enterprises LLC further solidifies the trend in bankruptcy law toward rejecting or at least limiting the enforceability of prepetition waivers of the automatic stay. It also refines the case-by-by case analysis, emphasizing that waivers will not be enforced if they primarily benefit a single creditor while harming the debtor-in-possession and broader creditor pool. Overall, In re DJK Enterprises LLC weakens the enforceability of prepetition waivers, adding to the judicial skepticism toward automatic stay waivers and making it even more difficult for lenders to rely on them as a mechanism for bypassing the bankruptcy process.
Implications for Lenders and Borrowers

Lenders should not rely on prepetition waivers of the automatic stay as a guaranteed method to expedite foreclosure or debt recovery in bankruptcy. While waivers generally cannot hurt or disadvantage the lender, courts will continue to scrutinize such provisions and may refuse to enforce them altogether. To improve enforceability, waivers should be clearly drafted with explicit consideration provided, include factual stipulations about the debtor’s financial status, and avoid overreach that courts may find unconscionable.
Forbearance agreements and deeds in lieu of foreclosure should be structured carefully, taking into account applicable state law and equitable mortgage doctrines, which could preserve a debtor’s rights despite contractual language.
Lenders should seek alternative protections, such as court-approved stipulations or structuring agreements to demonstrate independent grounds for a court to grant relief from the stay.

If you have any questions about how this ruling may affect your lending practices or bankruptcy litigation strategies, please contact our office for further guidance.
[1] In re Lopez-Granadino, No. 08-30707-H3-13, 2008 Bankr. LEXIS 686, *5 (Bankr. S.D. Tex. Mar. 12, 2008).
[2] Id.
[3] Id. at 2.
[4] Id. at 5.
[5] Id. at 13.
[6] Id.
[7] Id.
[8] Id. at 3.
[9] Id. at 3-4.
[10] Id.
[11] Id. at 4. While prohibitions on filing for bankruptcy are beyond the scope of this alert, such provisions are generally unenforceable for public policy reasons. See e.g., In re Shields, 524 B.R. 769 (Bankr. E.D. Tenn. 2015); In re Bay Club Partners-472, LLC, No. 14-30394-rld11, 2014 Bankr. LEXIS 2051 (Bankr. D. Or. May 6, 2014); In re Melbourne Beach, LLC, No. 6: 17-bk-07975-KSJ, 2019 Bankr. LEXIS 4113 (Bankr. M.D. Fla. Aug. 6, 2019).
[12] Id. at 4-5.
[13] Id. at 5.
[14] Id.
[15] Id. at 12.
[16] Id. at 8.
[17] Id. at 9.
[18] Id. at 13.
[19] Id. at 14, 29.
[20] Id. at 19.
[21] Id. at 28-29.
[22] Prepetition Waivers of the Automatic Stay: Lender Satisfaction Not Guaranteed: By Gregory G. Hesse and Jesse T. Moore. 2013.
[23] In re Philadelphia Athletic Club, Inc., 17 B.R. 345 (Bankr. E.D. Pa. 1982); In re Cheeks, 167 B.R. 817 (Bankr. D.S.C. 1994); In re Excelsior Henderson Motorcycle Mfg. Co., 273 B.R. 920 (Bankr. S.D. Fla. 2002).
[24] Id.
[25] Id.
[26] In re Pease, U.S. Bankr. Ct, District of Connecticut Case No. 93-53692, Adv. Pro. No. 94-2126 (Bankr. E.D. Tenn. Mar. 21, 1996); Farm Credit of Central Florida, ACA v. Polk, 160 B.R. 870 (M.D. Fla. 1993); In re DB Capital Holdings, LLC, Civil Action No. 10-cv-03031-PAB (D. Colo. Jul. 28, 2011); In re DJK Enterprises LLC, 24-60126 at 12 (Bankr. S.D. Ill. Feb. 13, 2025).
[27] Id.
[28] Id.
[29] Id. at 10.
[30] Hesse & Moore, Prepetition Waivers, 2013; In re Powers, 170 B.R. 480 (Bankr. D. Mass. 1994); In re Desai, 282 B.R. 527 (Bankr. M.D. Ga. 2002); In re Frye, Case No. 05-10004 (Bankr. D. Vt. May. 27, 2005); In re Bryan Road, LLC, 389 B.R. 297 (Bankr. S.D. Fla. 2008).
[31] Id.
[32] In re DJK Enterprises LLC, 24-60126 at 11-12 (Bankr. S.D. Ill. Feb. 13, 2025).
[33] Pease, 195 B.R. at 433-434.
[34] Jeff Benfield Nursery, Inc., 565 B.R. at 608-609.
[35] In re DJK Enterprises LLC, 24-60126 at 12-13 (Bankr. S.D. Ill. Feb. 13, 2025).
[36] Id.
[37] Id.
[38] Id.

Weekly Bankruptcy Alert April 7, 2025 (For the Week Ending April 6, 2025)

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)

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