Increasing Trend of 363 Sales and Chapter 11 Case Dismissals Raises Post-Dismissal Jurisdiction Questions, According to June ABI Journal Article
Alexandria, Va. — An article in the June edition of the ABI Journal finds that the increasing use of bankruptcy as a vehicle for an asset sale and chapter 11 case dismissal also raises more questions about post-dismissal bankruptcy court jurisdiction. “This uncertainty about the bankruptcy court’s authority to determine matters post-dismissal – especially regarding asset sales under §363 – often worries buyers,” Thomas M. Horan and Ericka Fredricks Johnson of Womble Carlyle Sandridge & Rice LLP (Wilmington, Del.) write in their article, “Outer Limits of Jurisdiction: What Happens after a Bankruptcy Case Has Been Dismissed?”
Under the Bankruptcy Code, a case that has been closed or dismissed is no longer a pending bankruptcy case, and a case that has been dismissed under §349 cannot be reopened. Adjudication of any dispute between the parties in the dismissed chapter 11 cases may have to take place outside of bankruptcy court, write Horan and Johnson. “Issues at the outer limit of bankruptcy do not fit neatly into a traditional analysis of jurisdiction because jurisdictional questions most commonly arise in cases that are open,” according to the authors. “As a court of limited jurisdiction, it is questionable whether it is permissible for a bankruptcy court to act where there is no pending case.”
Another reason why jurisdiction over a dismissed case can be problematic is that, in a dismissed case, there is no longer a bankruptcy estate. “The primary effect of dismissal is to restore matters to their pre-petition state as if the case had never been filed,” Horan and Johnson write. Rather than facing the uncertainty over jurisdiction after a chapter 11 case is dismissed, the authors say that some buyers are now looking to finance a liquidating plan in chapter 11 or let pass uncontested a conversion of a case to chapter 7.
For parties considering a §363 sale and subsequent chapter 11 case dismissal, Horan and Johnson urge caution due to the jurisdictional questions that may arise. “All stakeholders in such cases should consider the consequences of dismissal for their clients and be prepared to address the possibility that the door of the bankruptcy courtroom might be closed after dismissal.”
To obtain a copy of “Outer Limits of Jurisdiction: What Happens after a Bankruptcy Case Has Been Dismissed?” published in the June edition of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at firstname.lastname@example.org.
ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.