Guide-for-Nonprofit-Organizations-Bankruptcy-Issues-FINAL-with-ads

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First, assume that John—notwithstanding Sam’s bankruptcy filing—mows the entire lawn andthen makes a demand on Sam for payment of the remaining $10. Here, John’s demand forpayment would violate the automatic stay. Thus, John is precluded from seeking payment fromSam because it could deplete Sam’s bankruptcy estate.Second, the Bankruptcy Code provides several options to a debtor regarding executorycontracts. The debtor can ―assume‖ the contract, thus obligating the postpetition entity toperform under the agreement. Debtors chose this option for various reasons, but do soprimarily when the benefits to the debtor are important or necessary to the debtor’s business.Conversely, the debtor can ―reject‖ the contract. This action is akin to affirmatively breachingthe agreement. Under this option, the non-debtor counter party is no longer obligated toperform and is entitled to assert a general unsecured claim against the debtor’s estate fordamages it has suffered. A debtor may also ―assign‖ its rights under a contract. By choosing toassign rights under a contract, a debtor may be able to more efficiently monetize a contract.The above discussion has focused on executory contracts, but the analysis and rationale is thesame for a debtor’s unexpired leases. Like many things in bankruptcy, the nuances andintricacies of executory contract and unexpired lease law are limitless. Generally, however, aparty can predict the outcome of any dispute by determining what will benefit the debtor’sestate and pursuing that goal.Avoidance ActionsKeeping with the ―maximization of value‖ theme, the Bankruptcy Code gives a debtor twopowerful weapons—fraudulent transfer actions and preference actions—to ―avoid‖ certaintransfers of the debtor’s property made prior to the bankruptcy petition. In common parlance,bankruptcy professionals refer to these weapons as ―avoidance actions‖ because the result isgenerally the same for both types: a prepetition transfer of the debtor’s property to a thirdparty is avoided—i.e., annulled—such that the property or its value is returned to the debtor’sestate.The first type of avoidance action—a fraudulent transfer action—can take one of two formsunder the Bankruptcy Code. First, a debtor or trustee can assert a fraudulent transfer actionagainst a third party where the debtor or trustee can show that the transfer was effectuated withthe actual intent to hinder or defraud the debtor’s creditors. For example, a business debtor’smanagement team—just before a bankruptcy filing—authorizes payment of non-standardbonuses to the company’s executives. If the elements of a fraudulent transfer are satisfied, theBankruptcy Code allows the postpetition debtor or trustee to recover the bonus paymentsbecause the money should be used to pay creditors—not gratuitous payments to executives.In addition to a fraudulent transfer action based on actual fraud, the Bankruptcy Code providesa cause of action for ―constructive fraud.‖ Constructive fraud is shown when a transfer ismade from the prepetition debtor to a third party, and in return for the transfer the third partygives less than ―reasonably equivalent value‖ for the transferred property. For example, adebtor transfers title to real property worth $1 million to a third party the day before the debtorfiles bankruptcy, and the third party pays $500 for the property. Again, the purpose behind this24
ule is clear: bankruptcy seeks to maximize the value of the debtor’s property so that creditorscan recover as much as possible.The second type of avoidance action—a preference action—is built upon the same rationale;however, for a preference action, the law is not concerned about the motivation behind thetransfer. Instead, under preference law, a postpetition debtor or trustee may avoid any transferof estate property made to or for the benefit of a creditor within 90 days prior to the bankruptcyfiling, when the transfer would allow a creditor to recover more than it would recover under ahypothetical liquidation of the debtor’s assets. Basically, preference law can be summed up as arule against allowing a creditor to skip ahead of other creditors—that is, the Bankruptcy Codedoes not allow a debtor to ―prefer‖ one, favored creditor above others.In sum, avoidance actions give a postpetition debtor or trustee other options for maximizing thevalue of property available for distribution to creditors. As you might expect, fraudulenttransfer and preference actions are hotly contested—indeed, no one likes to give up money—and the Bankruptcy Code does provide for specific defenses to avoidance actions. Nevertheless,avoidance actions should and do scare most creditors.Federal Rules of Bankruptcy ProcedureBy way of brief mention, it is important to note that, in addition to the Bankruptcy Code, thebankruptcy process is governed by the Federal Rules of Bankruptcy Procedure. These rules, astheir name gives away, govern the nuts and bolts of bankruptcy cases. For example,Bankruptcy Rule 2002 governs the types of notices that must be provided throughout abankruptcy case. In fact, a fair number of the Bankruptcy Rules address things like notice tocreditors, the mechanics of filing a claim, certain duties to be performed by the bankruptcycourt clerk, and other administrative and procedural issues.ConclusionAs you can tell, bankruptcy law is complex. Nevertheless, the topics and principals discussedabove are basic themes that underpin most of the complexity. Once you have a firmunderstanding of these basics, you will be able to understand the more advanced topics coveredin the next sections of this Guide.25
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Page 9 and 10: Reorganize, or Liquidate?After a th
Page 11 and 12: CommitteesThe existing committee st
Page 13 and 14: Commitment and CompositionWe talked
Page 15 and 16: these requirements as it begins to
Page 17 and 18: the appointment of a committee is m
Page 19 and 20: Property of the EstateOnce a debtor
Page 21 and 22: Next, the Bankruptcy Code lists a n
Page 23: Executory Contracts and Unexpired L
Page 27 and 28: In addition to the bankruptcy petit
Page 29 and 30: Compensation and reimbursement of p
Page 31 and 32: payments to the telephone company a
Page 33 and 34: provision of the Code may require t
Page 35 and 36: entitled to priority over other uns
Page 37 and 38: This discussion will also involve t
Page 39 and 40: in the ordinary course, non-ordinar
Page 41 and 42: While the debtors and the committee
Page 43 and 44: into an involuntary Chapter 11 fili
Page 45 and 46: grants to assess whether or not the
Page 47 and 48: the nonprofit in completing its cou
Page 49 and 50: (4) The proposed modifications must
Page 51 and 52: administrative expense priority. Fu
Page 53 and 54: companies in the S&P 500 maintainin
Page 55 and 56: ight to payment under a benefits pl
Page 57 and 58: applicable non-bankruptcy law. The
Page 59 and 60: egarding the quality of patient car
Page 61 and 62: ankruptcy proceeding should consult
Page 63 and 64: the nonprofit should approach its c
Page 65 and 66: newly formed organization and seek
Page 67 and 68: period of time, to the issuance of

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