Unlike Chapter 7 liquidations and Chapter 11 reorganisations, cases filed under Chapter 15 of the Bankruptcy Code are ancillary – essentially functioning in aid of recognised foreign insolvency proceedings. This article considers the discovery tools available to foreign representatives under Chapter 15 and two key issues relating to Chapter 15 discovery: seal-and-gag orders and the recent decision in Platinum Partners.
The Supreme Court's decision in Merit Management construes Section 546(e) of the Bankruptcy Code more narrowly than most lower courts have done before. Often referred to as the securities 'safe harbour', this provision prevents a bankruptcy trustee from unwinding settlement payments or other transfers made in connection with securities contracts if the payments or transfers were "made by or to (or for the benefit of)" certain kinds of market participant, including any stockbroker or financial institution.
The Supreme Court recently held that Section 546(e) of the Bankruptcy Code does not apply to transfers in which financial institutions are mere intermediaries. This decision plainly rejects what was, in many judicial circuits, a long-held interpretation of Section 546(e) and leaves certain transactions previously thought to be inviolate vulnerable to later being unwound if one of the parties files for bankruptcy within the relevant statutory period.
The First Circuit Court of Appeals recently held that Section 1109(b) of the Bankruptcy Code provides a creditors' committee with an "unconditional right to intervene" in an adversary proceeding. This decision further bolsters the right of creditors' committees to intervene in and be heard on all matters within a bankruptcy case and positions the First Circuit in line with the Second and Third Circuits, which both have similarly concluded that the code affords an unconditional right to intervene.
In an upcoming case, the Supreme Court will address the question of whether the Bankruptcy Code bars a bankruptcy trustee from avoiding a debtor's constructively fraudulent pre-petition securities transactions merely because the deal was executed through a financial intermediary with no stake of its own in the transaction. The issue turns on the meaning of Section 546(e) of the Bankruptcy Code.