“So make your life a little easier; When you get the chance, just take; Control”
– Janet Jackson
We know that a corporate parent cannot use its control over its subsidiary to deplete it of value and render the entity insolvent.  Veil-piercing and claims to recover fraudulent transfers or for breach of fiduciary duty (among others) can remedy such wrongful acts.  But can a subsidiary corporation wrongfully manipulate its parent?  If so, what is the remedy?
In Burtch v. Owlstone, Inc. (In re Advance Nanotech, Inc.), the United States Bankruptcy Court for the District of Delaware concluded that yes, children can control their parents, and yes, they can owe “upstream” fiduciary duties to their shareholders.  Consequently, the parties controlling a transaction should take particular care in ensuring that they are aware to whom exactly they owe their duties and that the various parties to any transaction are all at appropriate arm’s length.

(posted 14 hours 35 min ago)

Officials in charge of liquidating a pair of failed Irish banks are asking a U.S. bankruptcy judge to sign off on sales involving about EUR15 billion ($20.72 billion) in soured loans, as Ireland continues to dig out from the wreckage of its collapsed property market. The Wall Street Journal has the Daily Bankruptcy Review article here.
(Daily Bankruptcy Review is a daily newsletter with comprehensive coverage and analysis of emerging and in-progress insolvencies and turnarounds. For a two-week trial, visit our homepage, scroll to the bottom and click “try for free.”)
A federal bankruptcy watchdog overseeing TelexFree LLC’s Chapter 11 case found compelling evidence of fraud, dishonesty and gross mismanagement and asked a judge to order the appointment of a trustee to take control of the company. Read the Daily Bankruptcy Review article via WSJ.
The Tokyo District Court ordered bitcoin exchange Mt. Gox to start liquidating, Reuters reports.

WSJ.com: Bankruptcy Beat
(posted 15 hours 55 min ago)

5304492399_805a329467_zThou shalt not file bankruptcy for a corporation.
It’s almost a commandment in my practice.
But for every rule, there is an exception and the man sitting in front of me called on the exception.
He wanted, (or really needed) to stay in the same line of construction work.  But business was bad, there was a supplier suing the corporation, and then there was that pesky, state corporations law.
The duties of corporate officers
Hearken back to law school and Corporations.  Officers and directors owe the corporation a duty of loyalty.  They must not usurp corporate opportunities nor compete against the corporation.
My normal advice to business folk when a corporation needs to fold is to simply close the doors, liquidate any assets, pay the most important bills to the extent possible, and move on.

Bankruptcy Mastery
(posted 16 hours 52 sec ago)

There is a new case from the United States Bankruptcy Court for the Southern District of Indiana that allowed a debtor, employed as a nurse, to discharge approximately $200,000.00 in student loan debt and pay only $90,000.00 over 15 years!

MAE, INC., Defendant.
Case No. 12-13062-JMC-7, Adversary Proceeding No. 13-50089
2014 Bankr. LEXIS 1231
March 31, 2014, Decided

(posted 16 hours 17 min ago)

No one grows up dreaming of becoming a bankruptcy lawyer. When I was a little boy, I wanted to be an astronomer or an astronaut.  Even by the time I got to law school, bankruptcy was not on my radar: I was hoping to become a professor.  But here I am embarking on my 12th year as a bankruptcy lawyer (and 4th as a trustee), and I am so grateful for the experience.  Here are five spiritual lessons I’ve learned from my practice:

Spiritually Bankrupt
(posted 17 hours 49 min ago)

Why doesn’t payday lending violate the FTC’s Credit Practices Rule (16 C.F.R. 444.2)?  That’s what I’m trying to figure out.  
The Credit Practices Rule prohibits taking or receiving directly or indirectly an assignment of wages in most circumstances.  (None of the exceptions appear applicable to the payday lending context.) The FTC has gone after some payday lenders for taking a formal direct assignment of wages, but that's an usual term for payday loans. Rather, I'm more interested in the question of an indirect wage assignment. I think there's a pretty good case that a payday loan is an indirect assignment of wages:

  • A payday loan is called a “payday loan”—it’s designed to ensure repayment from the borrower’s wages;
  • the loan’s maturity is usually designed to match with pay periods;
  • usually the only “underwriting” is verification of the borrower’s employment;
  • the loan is “secured’ with either a post-dated check or authorization for an ACH debit with the date set for…payday.  

That sure looks to me like an indirect assignment of wages—the loan is designed to enable the lender to be repaid from the borrower’s wages without having to go to court and get a judgment and a garnishment order (i.e., a judicial wage assignment).  

Credit Slips
(posted 1 day 5 hours ago)

The ChamberWise Education Consortium, Accredited Investor Markets and Financial Poise, are pleased to announce the release of their jointly-produced webinar, “Crowdfunding Debt“.
Now available on demand, “Crowdfunding Debt” educates business owners and executives about how they can use crowdfunding platforms to borrow money.
“Equity crowdfunding deals have multiple layers and will be game changers to standard bank financing,” says attorney Chris Balestrino. “In part, there is the ability to layer on subordinate financing to bankable transactions for small businesses. For example, whenever you own a golf course, a marina or the liquor store on the corner, the ability to borrow money from the bank at up to15% of your overall capital stack, you can add that to raising money through equity crowdfunding deal and it will be a great boost.”

(posted 1 day 8 hours ago)

On January 17, 2014, California Governor Jerry Brown declared a “State of Emergency” in California due to the severity of drought conditions across the State.  Since then, the California drought continues to be severe and unprecedented in recent years, and is taking a pervasive toll on California residents, businesses, farm land, foliage and wildlife.  Despite recent rainfall, local water districts and the State have called for voluntary, and in some locales, mandatory reduction in consumption of water.  After considering the severe human toll, anyone doing business with an entity located in California (or other western states experiencing similar drought conditions) that requires water for any business purpose, particularly farmers in Northern and Central California where there are fewer alternative sources of water, must be concerned about inventory and the impact of the drought on its supply chain.  Can my California contract counterparty fulfill its obligations to produce sufficient quantities of produce, dairy products, steel, flowers, honey, etc., to meet my contract needs?  Waiting for a delivery that never arrives, is delayed or arrives in lower quantity or, worse yet, quality, is not a viable option.  The key is to be prepared to find an alternative supplier so that production goals can be timely met.  Successful navigation of these issues requires careful contract drafting and contemplation in advance of new agreements, and critical analysis of existing contracts.  This article highlights the pertinent legal mechanisms at work and options for your business.

(posted 1 day 8 hours ago)

Some thoughts on GM, successor liability, 363 sales, and due process – over at Dealb%k.

Credit Slips
(posted 1 day 9 hours ago)

courtroomA woman indicted on bankruptcy fraud charges is also charged with intentionally setting a retail store on fire.  Debra Fowler Kessinger, 57, was recently indicted in connection with a fire that took place in 2011 in Warren Country Kentucky. Kessinger was formally charged by a grand federal jury in connection to a fire that destroyed […]

(posted 1 day 9 hours ago)