Below is our initial take on some of the major bankruptcy-related developments from the past week:
A recent government report released by The Government Accountability Office is urging Congress to consider amending the U.S. Bankruptcy Code to include oversight of retention bonuses paid in the weeks preceding a Chapter 11 filing. Such arrangements have been criticized by bankruptcy judges, including by Judge Mary Walrath in the Hertz cases, as “offensive.” Parties currently seeking to claw back such pre-petition payments to insiders must generally rely on the court’s avoidance powers to do so.
The federal judge overseeing Puerto Rico’s financial restructuring ruled on October 6 that she will have the final say on whether the restructuring proposed by the island’s fiscal oversight board is in line with the board’s future fiscal plan. U.S. Bankruptcy Judge Laura Taylor Swain, who was assigned to oversee the proceedings regarding Puerto Rico’s $70 billion debt and future fiscal plans, found that although the Puerto Rico Oversight, Management, and Economic Stability Act (the “Act”) bars her from hearing challenges to the oversight board’s decision to certify whether its proposed restructuring plan is consistent with its five-year fiscal plan, the Act requires her to consider evidence and issue a ruling on whether the oversight board’s consistency determination is accurate.
A temporary geographical disparity in how much Chapter 11 debtors had to pay in quarterly bankruptcy fees was ruled unconstitutional by the Tenth Circuit for violating the Constitution’s Bankruptcy Clause, which requires that federal bankruptcy rules be uniform. The decision is notable because it adds to an existing circuit split in which the Tenth Circuit joins the Second Circuit in finding that the fee hike is unconstitutional, while the Fourth and Fifth circuits have taken the opposite position. There is a pending petition for certiorari before the U.S. Supreme Court, filed by the liquidating trustee in the Circuit City bankruptcy cases, which, if granted, would seemingly resolve the split.