Author: Leslie Baskin

On March 15,2021, the Third Circuit held that a “stalking horse” bidder in a failed transaction may still be entitled to assert an administrative claim in the bankruptcy notwithstanding the fact that its “termination fee” was disallowed by the Court. In In re Energy Future Holdings Corp., 2021 U.S. App. LEXIS 7400, (3d Cir. 2021), the Debtors opted to terminate a merger agreement with NextEra Energy, Inc. ( “Bidder”) since the Bidder, which was a “stalking horse bidder”, failed to get the required regulatory approvals needed to meet its requirements under a Merger Agreement. The Delaware Bankruptcy Court denied the Bidder’s request for allowance and payment of its $275 million termination fee, which denial was subsequently affirmed by the Third Circuit in 2018. In the Third Circuit opinion, it recognized that the fee could be allowed as an administrative expense per 11U.S.C. Section 503(b)(1)(A) as it would foster competitive bidding in such a transaction.

Thereafter, the Bidder filed an application for allowance of an administrative claim which would allow for Debtor’s payment of all costs it incurred during its attempts to consummate the proposed merger. In this matter, the request for allowance of the administrative claim was for $60 million for such costs. Certain creditors filed a Motion to Dismiss and Motion for Summary Judgement, and the Bankruptcy Court granted both motions resulting in the denial of an allowed administrative claim and finding that the Bidder did not engage in any action to promote competitive bidding, but rather it forced the Debtor to seek other options at far less value. Thus, it found that the Bidder did not meet the standards as required for an allowed administrative clam under the Bankruptcy Code. This ruling was appealed to the District Court where it was affirmed. An appeal was taken to the Third Circuit.

The Third Circuit reversed the denial of the administrative claim and found that there existed a material issue of genuine fact as to the scope of the cost and expense provision in the Merger Agreement, and remanded the matter to District Court to vacate its orders with further remand to Bankruptcy Court. It found that the Merger Agreement itself allowed for recovery of the expenses per 503(b)(1)(A) and was addressed in the Debtor’s Chapter 11 Plan. The Third Circuit found that the Bidder plausibly alleged the requirements under Section 503(b)(1)(A), that the costs were actual, necessary costs and expended to preserve the estate. It further found that the Bidder had to make a showing (upon remand to Bankruptcy Court) that the benefit it provided to the estate exceeded any associated increased costs to the estate, which may include additional interest expenses while various appeals were being pursued.  In doing so, the Third Circuit confirms that there is an alternate remedy for stalking horse bidders to seek reimbursement for out of pocket expenses, notwithstanding the fact that there may be no entitlement to a break-up fee.

Practice Note- A potential purchaser must memorialize, in a merger or similar agreement, its ability to seek an administrative claim in trying to consummate a failed transaction. The flip side to this position is that Debtors may be able to avoid paying any such claim if it specifically puts in the controlling documents that if a termination fee is not allowed, the Bidder is precluded from requesting an administrative claim under Section 503(b)(1)(A).

To discuss this topic or any issues relating to creditors rights and bankruptcy, please contact Leslie Beth Baskin, Esquire at or 215-241-8926.


On March 19, 2021, the Third Circuit, in In Re: Orexigen TherapeuticsInc., No. 20-1136, 2021 WL 1046485 (3d Cir. March 19, 2021) issued a unanimous and precedential opinion adopting the analysis set forth by Bankruptcy Judge Shannon in In Re: SemCrude L.P., 399 B.R. 388 (Bankr. D.Del. 2009) wherein the Court disallowed what is known as “triangular setoffs,” opining that they lack “mutuality” as required by Bankruptcy Code Section 553(a), and therefore are unenforceable. Here, although an issue of first impression in the Third Circuit, this ruling follows most of the other courts that have decided this issue, including three other Circuit Courts.

In this case, the Debtor owed a subsidiary (“Subsidiary”) of one of its creditors $9.1 million. That same creditor (“Creditor”) had owed the Debtor approximately $7 million. The issue to be decided was whether the creditor who had a right under non-bankruptcy law to set-off these amounts, had a right of setoff in the bankruptcy proceeding. This concept is generally known as a “triangular setoff.” Put another way, if the Bankruptcy Court allowed this right of setoff, the Creditor would owe nothing to the Debtor and the Debtor would owe the Subsidiary $2 million.

The Bankruptcy Court found that setoff was improper, opining that Bankruptcy Code Section 553(a)’s requirement of mutuality is immutable.  The District Court affirmed and the ruling was appealed to the Third Circuit. The Third Circuit, adopting the “sound analysis” presented by the Bankruptcy Court, found that the language of the statute imposed a distinct limitation on any exercise of setoff rights to a debtor’s claim against the creditor and that creditor’s claim against the Debtor. It was articulated that Congress intended for “mutuality” to mean only the debts between the same two parties. The concept of “mutuality” does not include anything except for a bilateral arrangement and that the triangular setoffs are not mutual, and that there can be no contractual exception to the mutuality requirement. The Third Circuit stated that allowing anything beyond this scope would fly in the face of a fundamental principle underlying the Bankruptcy Code which, inter alia, tries to maximize all returns to the creditors themselves. They stated that mutuality is literally tied to the identity of a particular creditor that owes an offsetting debt, declaring that this right is personal and that there is no way around the language of Section 553.

Interestingly though, in dicta, the Third Circuit did hint that there are measures which could be adopted by a number of market participants which could include the use of “joint and several” arrangements in tri-party structures.

To discuss this topic or any other issues relating to creditors rights and bankruptcy, please contact Leslie Beth Baskin, Esquire at 215-241-8926 or


On March 27, 2020, the CARES ACT was passed by Congress in response to the COVID-19 crisis. Under the CARES ACT, the SBA offered loans under the Paycheck Protection Program (“PPP”). On February 22, 2021, the Administration issued a fact sheet (“Fact Sheet”) outlining reforms that will, inter alia, provide more PPP loans for the smallest of businesses that did not previously receive a PPP loan. The goal is to assist these businesses in surviving the COVID-19 crisis and help them reopen.
Amongst other things, the Fact Sheet outlined how the Administration will:
1. Help sole proprietors, independent contractors, and self-employed individuals receive more financial support.
This is in recognition of the fact that these businesses are owned by women and people of color and that they have been greatly excluded from the PPP because of how PPP loans are calculated. The Administration will revise the calculation for these applicants so that they will receive more relief. It will also set aside $1 billion for businesses in this category without employees that are located in low- and moderate-income areas.
2. Eliminate the exclusion of small business owners with prior non-fraud felony convictions from PPP eligibility.
Under the current rules, a business is ineligible for a PPP loan if it is at least 20 percent owned by an individual who has either:
         A. an arrest or conviction for a felony related to financial assistance fraud within the previous five years; or
        B. any other felony within the previous year. It will also eliminate the second restriction (the one-year look-back) unless the individual is incarcerated at the time of the PPP loan application.
3. Eliminate the exclusion of small business owners who are delinquent on their federal student loans from PPP eligibility because the exclusion disproportionately impacts people of color.
4. Ensure access for non-citizen small business owners who are not lawful US residents by clarifying that they may use Individual Taxpayer Identification Numbers (“ITINs”) to apply for a PPP loan.
The current PPP rules did not provide clear guidance for ITIN holders like Green Card holders or those in the US on a visa. To address this inconsistency, the SBA will issue clear guidance whereby otherwise eligible applicants cannot be denied access to the PPP because they use ITINs to pay their taxes.

The Fact Sheet also states that the Administration will take the following steps:

1. Promote transparency and accountability by improving the PPP loan application to encourage self-reporting of demographic data and better illustrate the impact of the PPP across various population segments
2. Improve the Emergency Relief Digital Front Door by updating the SBA websites to help applicants find resources about relief options and completing applications more easily.
3. Continue to conduct extensive stakeholder outreach to learn more about challenges and opportunities with the current emergency relief programs.
4. Enhance the current lender engagement model. The SBA is launching a new initiative to deepen its relationships with lenders and give lenders more opportunity to ask questions, provide recommendations, and help resolve open questions and concerns in a more streamlined way.
The facts stated above are a sampling of the changes and are an attempt to make PPP loans more accessible to a wide range of needy businesses during this continued crisis.
To discuss this topic or issues relating to business, PPP loans or creditors and debtors rights in bankruptcy, please contact Leslie Beth Baskin at 215-241–8926 or at

On January 14, 2021, the U.S. Supreme Court in City of Chicago vs. Fulton reversed a Seventh Circuit ruling that the City of Chicago violated the automatic stay created by car owners’ bankruptcy filings, when the City refused to immediately return the cars after the bankruptcy filing that had been impounded pre-bankruptcy for parking or traffic violations. Put another way, if a creditor is in possession of assets they seized prior to the bankruptcy filing, they do not necessarily have to return the repossessed property.

This unanimous ruling by the Supreme Court “resolves” a dispute among the federal appellate courts on a very discrete issue under Section 362(a) of the Bankruptcy Code.

The Third, Tenth, and District of Columbia Circuits had determined that creditors who maintained possession of seized property are NOT violating the automatic stay. Contrary to those Circuits, the Second, Seventh, Eighth, Ninth, and Eleventh Circuits found that holding on to seized property is a prohibited “act to exercise control over property” of the bankruptcy estate and therefore violative of the stay.

Justice Alito delivered the unanimous opinion of the Court. He wrote that the “most natural reading” of the Bankruptcy Code is that it “prohibits affirmative acts that would disturb the status quo of estate property as of the time when the bankruptcy petition was filed.” He further stated that the act of merely retaining possession of the repossessed property does not violate the automatic stay.

Justice Sotomayor, in her concurring opinion, highlighted the fact that the Justices did not decide whether other sub-sections of Section 362 may still require a creditor to return repossessed debtor property if the creditor is holding it for the purpose of extracting payment. She wrote her concurring opinion to emphasize that despite this ruling, the Court is not deciding whether and when Section 362’s other provisions may require a creditor to return property to the bankruptcy estate or debtor. See 362(a)(4) and (6). She also pointed out that this Opinion did not provide guidance as to how bankruptcy courts should actually enforce the creditor’s separate obligation to deliver property back under other sections of the Bankruptcy Code, including Section 542. Importantly, Justice Sotomayor articulated her social concerns as to how low-income communities are disproportionately burdened in this regard, as well as communities of color. She points out how many debtors who are affected by this problem rely on their cars to go to and from work and that in order to get their car back, they must rely on procedures in bankruptcy court which are extremely slow (proceedings to enforce turnover of property under Section 542) and how it is up to the legislatures to address this issue.

This opinion is a “must read” especially for consumer practitioners who represent not only creditors but debtors concerning the ability to retrieve repossessed property. Importantly, the Supreme Court in this opinion did not rule on whether debtors could achieve their desired results by invoking other provisions of Section 362 or 542, leaving the door open to other possible avenues of recourse.

To discuss this topic or issues relating to creditors rights and bankruptcy, please contact Leslie Beth Baskin at 215-241-8926 or at 


Courts appeared to be split as to whether businesses are eligible for a Paycheck Protection Program (“PPP”) loan under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) if you are a business in bankruptcy. The CARES Act was created to, inter alia, provide small businesses with loans under the PPP to keep their workforce employed. Uncertainty quickly arose as to whether businesses in bankruptcy were proper candidates for these loans. Neither the statute nor the initial regulation disqualified them, but the SBA later adopted an application form which specifically disqualified them. The SBA disqualification was under the rubric that business debtors pose an “unacceptably high risk for an authorized use of funds or non-payment of unforgiven loans.” Further, the SBA posits that the PPP loans fall under the category referred to as Section 7(a) loans which embody the standard of the loan being of “sound value or so secured as reasonable to assure repayment.”

Earlier this year, bankruptcy courts in Florida, Washington, New Mexico and Tennessee found debtor’s exclusion from eligibility from the SBA/PPP loans to be unlawful, determining that the exclusion of business debtors from PPP loans while in bankruptcy was “arbitrary and capricious” and a violation of 11 USC Section 525(a), which in essence provides that a government unit may not discriminate with respect to a request for a grant based solely on the fact that they are a bankruptcy debtor. Other bankruptcy courts, such as in Delaware, New York, Maryland, Georgia and Maine, have found to the contrary and upheld the SBA’s position determining that business debtors are ineligible.  Most recent rulings have sided with the SBA’s position that such businesses are ineligible for a loan, noting that while the bankruptcy exclusion may be harsh, it is within the SBA’s authority. For example, see In re Cosi, Inc. Case # 20-10417 ( Bankr. D. Del. April 30, 2020)

On December 22, 2020, a three-judge panel in the 11th U.S. Circuit Court overturned a Bankruptcy Court ruling and upheld the SBA rule that makes bankruptcy business debtors ineligible for the PPP loans. See Gateway Radiology Consultants, P.A. , No. 20-13462 (11th Cir.), wherein the 11th Circuit overruled the Bankruptcy Court which had found that the SBA was “arbitrary and capricious” in exceeding its authority by disqualifying businesses in bankruptcy proceedings from PPP availability. The 11th Circuit now joins the 5th Circuit in finding that the SBA does not exceed its authority in declining to grant PPP loans to business debtors. ( In re Hidalgo County Emergency Service Foundation, 962 F.3d 838 ( 5th Cir. 2020)).

On December 27, 2020, President Trump signed the Bipartisan-Bicameral Omnibus COVID Relief Deal, which temporarily amended the bankruptcy code to allow PPP loans to some business debtors, but with the caveat that this change only would become effective if the SBA agrees to allow PPP loans in bankruptcy. Query as to whether this amendment changes the status quo on this issue at all, and why the SBA would do a 180 turn at this juncture.

To avoid the denial of a PPP loan, some businesses who otherwise would need bankruptcy protection have chosen to not file for bankruptcy relief at all, or once in a bankruptcy dismiss their bankruptcy to pursue PPP loans. Questions to ponder here are: whether a debtor who receives a PPP loan and then files for bankruptcy protection (as part of a pre-ordained plan) must disgorge the PPP loan, whether PPP loans received prior to a bankruptcy filing may be used as cash collateral in a later bankruptcy filing for purposes other than those allowed under SBA guidelines, the commingling of PPP loan funds with other bankruptcy proceeds, etc.

To discuss issues regarding PPP loans, creditors rights and bankruptcy or business workouts, please contact Leslie Beth Baskin, Esquire at 215-241-8926 or at


In my 35 years of being a bankruptcy practitioner, little did I think that I would ever quote Bette Davis from the movie, “All About Eve”, when she warns: “Fasten your seatbelts- you’re in for a bumpy ride”. Not only has the COVID-19 pandemic been unfathomable and the bumpiest of rides (and we do not even now know where it will take us), it has been devastating to our health and everyday well being. In fact, it is predicted to cost the world-wide economy at least $2.7 trillion. Realistically, we can expect to see a new wave of restructurings in the restaurant, hospitality, energy, manufacturing, transportation and the real estate industries. Further, this situation will affect relationships between landlords and tenants, lenders and borrowers and employers and employees. With “stay at home orders”, close of businesses, employees are losing jobs and filing unemployment claims at unprecedented rates.

The Coronavirus Aid, Relief and Economic Security Act of 2020 ( “CARES Act” ) signed into law on March 27, 2020, in conjunction with the Small Business Reorganization Act of 2019 (the “SBRA” ) which became effective a month prior, will act as a lifeline to small businesses and will also make bankruptcy options much more attractive for individuals. Together, the new legislation will streamline existing rules governing the efforts of small businesses to reorganize under Chapter 11 and individuals under Chapter 13.

For example, the CARES Act raises the maximum debt level limit of the new small business reorganization originally under SBRA to qualify from $2,725,625 to $7,500,000, allowing for increased access to the bankruptcy process (increase in debt limit expires on March 27,2020 unless it is extended by Congress). According to a recent study by the Brookings Institute, this expanded eligibility could help save an estimated seventy (70) percent of all businesses that might have to file for bankruptcy.

Further, the SBRA makes it easier for companies to retain their small businesses and makes it more difficult for creditors to contest Chapter 11 cases. Other critical provisions of the CARES Act provide that: a Plan must be filed by the debtor within ninety days of the bankruptcy; a Trustee will be appointed to assist in the proceeding; and a creditors committee will not be appointed ( critical to the saving of time and expense of the proceeding).

Individuals who are experiencing hard times due to pay cuts, job losses and illness due to the coronavirus may not be able to meet their monthly expenses and may feel hopeless and at a loss at to how to proceed. The first step may be to contact your landlord or mortgage company to see if you can defer a few months of payments perhaps to the end of the lease or mortgage. Next, for car leases, contact your leasing company who also may consider deferring a few months’ payments to get you through the crisis. If those steps do not resolve your money issues, you may have to consider filing a personal bankruptcy in a Chapter 7 or 13. If that is the avenue which is pursued, your stimulus payment ( $1200) will not be considered in your income calculation for eligibility for Chapter 7 or your disposable income calculation for Chapter 13 plan payment considerations.

If you have any questions about personal or business bankruptcies, the CARES ACT, or the new small business bankruptcy under Chapter 11 (Sub-Chapter V), please contact Leslie Beth Baskin, Esquire at: or 215-241-8926.