Below is our initial take on recent bankruptcy-related developments:
Senators Propose Law Aimed at Protecting Investors When a Cryptocurrency Exchange Fails | Wall Street Journal
Senators Kirsten Gillibrand and Cynthia Lummis introduced a bill that would protect investors by keeping their digital assets separate from a cryptocurrency exchange’s assets in the event of the exchange’s bankruptcy.
S&K Take: An interesting response from the Senate to the Coinbase disclosure issue. Most bankruptcy professionals have recently fielded questions related to the treatment of “customer” assets in the case of a crypto “custodian” bankruptcy, and the answer usually is not an easy one. Legislation could help clarify the situation, although getting anything outside of the Subchapter V debt limit (discussed below) passed seems difficult ahead of the midterm elections. We will take a closer look at this proposed legislation and break it down in the near future.
The U.S. Supreme Court unanimously ruled that disparate government fees for Chapter 11 debtors are unconstitutional due to a lack of uniform application of the fees in all U.S. states.
S&K Take: Some really big news. We have a bigger piece in the hopper on this, but the Supreme Court’s decision raises a host of questions. What is the remedy for Debtors? Is it a return of the excess fees? How does a debtor (or a liquidation trustee) seek return of those funds? How extensive is the litigation? Does the US Trustee just capitulate and set up a “refund protocol”? If not, does this take away from the UST’s efforts with respect to third party releases? This one will be interesting.
National Realty Investment Advisors, which was being investigated by federal prosecutors, the SEC and state financial regulators for fraud and inflated investor returns last year, has now filed for Chapter 11 bankruptcy.
S&K Take: We have been tracking real estate-related bankruptcies, which seem (at least anecdotally) like they are picking up. This is another one, although this has a splash of Ponzi in the mix. Fairly big numbers here. We will be watching this one as it unfolds over the coming weeks.
The bankruptcy debt limit for eligible businesses will increase once again from $2.7 million to $7.5 million lasting for the next two years, as this pandemic response for bankrupt businesses has been reinstituted.
S&K Take: What most thought was a given took some time, but the debt limit raise on Sub Vs finally got done. The concept itself seems to have found a footing, and has provided some smaller businesses with an escape hatch that might not have otherwise existed.