Photo of Kenneth Listwak

Ken has broad experience in bankruptcy and reorganization matters, including adversary proceedings and contested matters in complex bankruptcy cases, and advising and guiding clients through complex issues involving bankruptcy law and Delaware legal practice.

Under Section 341 of Title 11 of the U.S. Code, the U.S. Trustee convenes a meeting of a debtor’s creditors, known as the 341 Meeting. This meeting serves to examine the debtor’s financial position and verify the facts stated in the bankruptcy filing. While not mandatory, creditors can use this opportunity to ask questions about the debtor’s financials and the bankruptcy case, providing them with insights into potential claim treatments and the debtor’s bankruptcy plan.

In the competitive world of commerce, sellers of goods can enhance their prospects for payment by leveraging a Purchase Money Security Interest (PMSI). This legal claim, when properly perfected, can provide a seller with priority over other creditors, even if those creditors have perfected a lien on the same type of collateral first.

In Chapter 11 bankruptcy cases, two critical documents are the disclosure statement and the plan. These documents represent the culmination of a case and provide a roadmap for the debtor’s path forward. A Chapter 11 plan can be a plan of reorganization, where the debtor emerges from bankruptcy as a reorganized entity, or a plan of liquidation, where the debtor’s remaining assets are liquidated and the proceeds are distributed to creditors. The plan outlines how creditor claims will be paid and, in the case of reorganization, provides that a debtor is fully discharged from its prior debts.

Bankruptcy proceedings often involve preferences, a complex issue that can be mitigated or eliminated through several affirmative defenses provided by the Bankruptcy Code. This article focuses on one such defense: the contemporaneous exchange defense, codified in 11 U.S.C. § 547(c)(1). This defense encourages creditors to continue business with companies potentially facing bankruptcy and protects transfers intended as a contemporaneous exchange for new value given to the debtor.

In the realm of bankruptcy sales, the role of a stalking horse bidder in a Section 363 sale is crucial. This bidder sets the baseline bid, protecting the debtor from receiving unreasonably low bids for its assets. In return, the stalking horse bidder receives certain protections, such as a break-up fee and reimbursement of reasonable expenses, which are outlined in the asset purchase agreement.

In the event of a company filing for bankruptcy, creditors often face the risk of preference exposure, where the company may seek to reclaim funds paid to the creditor prior to the bankruptcy filing. However, the Bankruptcy Code offers affirmative defenses that can help creditors reduce their preference exposure or liability. One such defense is the new value defense, also known as the subsequent new value defense. This defense, outlined in 11 U.S.C. § 547(c)(4), is designed to encourage creditors to continue their engagement with financially distressed companies.

The Absolute Priority Rule, as outlined in Section 1129(b)(2) of the Bankruptcy Code, plays a crucial role in Chapter 11 bankruptcy cases. It stipulates that claims of a higher priority must be paid in full before lower priority claims can receive any recovery. This rule also requires that all creditors must be paid in full before equity interest holders can retain any interest in the debtor or receive any distribution under the plan. The priority of a creditor’s claim, therefore, determines the extent to which they can expect to be paid under a confirmed Chapter 11 plan.