Senior Associate Btzalel Hirschhorn, Chair of SBAGK’s Bankruptcy Practice Group, and partner Mark Anderson, filed briefs involving the application of the Small Business Debtor Reorganization Act (“SBRA”).
The SBRA was passed by Congress in 2019, creating a new subchapter V of Chapter 11 of the Bankruptcy Code. As this law is still very new, there are many areas of the law which require clarification from the courts.
One such area involves the exception to discharge provision under 11 U.S.C. 523(a). In sum, this section provides that certain debts-mainly debts that were procured through fraud-are not eligible to be discharged in bankruptcy. However, the law is somewhat ambiguous on whether this would also apply in the context of a case filed under the SBRA.
A client of the firm was owed a substantial amount of money by a company that subsequently went into bankruptcy. The firm argued that the company had committed fraud and should not receive a discharge.
The bankruptcy court did not rule on the merits of the fraud claim but held that normal exceptions to discharge for individuals do not apply to companies filing under the new SBRA.
While the Bankruptcy Court had ruled that the exception to discharge does not apply to a corporate debtor, the bankruptcy court acknowledged that this was an issue of first impression – meaning no appellate-level courts in that district had given a ruling on that issue.
In the normal course of events, an appeal from a Bankruptcy Court must be heard by the intermediate-level court which would be the United States District Court for that District. However, in certain situations, the Bankruptcy Court can certify that an appeal can skip the intermediate-level District Court going straight to the United States Circuit Court for the Federal Circuit.
On behalf of the Plaintiff, the firm filed a motion arguing that the novel legal issues presented by this case warranted a speedy review by the appeals court.
The Bankruptcy Court agreed noting how this Court’s ruling had been discussed “at a panel of practitioners at the 2022 Westbrook Bankruptcy Conference and featured in Bill Rochelle’s daily newsletter to members of the American Bankruptcy Institute.”
The Bankruptcy Court further agreed that the notoriety of the Order rendered the issue presented for appeal as one of public importance.
SBAGK will next be filing a motion to have the Fifth Circuit accept Bankruptcy Court certification for direct appeal.
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