David J. Kozlowski and Dawn R. Sudama Examine When Chapter 11 Cannot Unwind a Functioning ABC in New York Law Journal

Morrison Cohen Bankruptcy, Restructuring & Governance Partner David J. Kozlowski and Associate Dawn R. Sudama recently published “No Exit: When Chapter 11 Cannot Unwind a Functioning ABC” in New York Law Journal.

Using In re Nussbaum Lowinger LLP as a case study, the authors examine when a subsequent Chapter 11 filing can displace a functioning assignment for the benefit of creditors (ABC), focusing on abstention under Section 305, turnover under Section 543 and bad faith under Section 1112 of the bankruptcy code. The decision highlights how an assignee’s substantial progress in an ABC, including investigations, litigation, settlements and recoveries, can make it difficult to restart the wind-down process in bankruptcy.

As the authors note, “Neither a termination clause nor a post-petition letter will claw assets back once an assignee has taken possession and gone to work, and sufficient time has passed.” The article underscores the importance of timing and progress for companies, creditors and principals navigating an ABC to avoid unwinding under the bankruptcy code.

A PDF of the article is provided below and is available here for Law.com subscribers.