Through its decision in in Husky International Electronics Inc. v. Ritz, the US Supreme Court has declined to establish a narrow interpretation of “actual fraud” in determining whether debts can be discharged through bankruptcy, overturning the Fifth Circuit and endorsing a broader view of a provision that bars parties from shedding debts obtained under false pretenses.
Bankruptcy & Restructuring partner and managing partner of the firm’s Chicago office, Tyler Nurnberg, commented on the significance of the High Court’s ruling for Law360:
"It’s a good result. While the issue decided was a narrow one, the case averted a serious threat to creditors, especially in the lending community, had the lower court decision been allowed to stand. The Bankruptcy Code’s discharge provisions strike a delicate balance between giving individuals who cannot pay their debts a 'fresh start,' while preventing them from using the process to escape liability for intentional misconduct. It is already difficult, some argue too difficult, for a creditor to establish that its debt was procured as a ... result of actual fraud. If the exception were narrowed to require a false representation, it would exclude other forms of intentional misconduct commonly believed to constitute fraud. Also, there is a concern in bankruptcy circles that limiting the exception to cases involving a misrepresentation would create a 'safe harbor' for unscrupulous debtors looking to evade liability for an endless variety of fraudulent schemes."
Also of Interest
- IFLR1000 Recognizes Kaye Scholer’s Global Presence, Practices and Lawyers October 19, 2016 • Recognitions
- Kaye Scholer Clients Achieve Nearly Full Recovery in Arch Coal Chapter 11 Proceeding October 14, 2016 • Client Successes
- New LSTA Par/Near Par Delayed Compensation Regime August 31, 2016 • Client Alerts
- Following Five-Day Trial, Kaye Scholer Secures Win for Medicalgorithmics August 25, 2016 • Client Successes
- Primoff Named Best in Insolvency & Restructuring at Americas Women in Business Law Awards August 22, 2016 • Recognitions
- Best Lawyers 2017 Recognizes 41 Kaye Scholer Lawyers August 15, 2016 • Recognitions
- Summer Associates Successfully Assist Transgender Clients July 27, 2016 • Client Successes
- LSTA Distressed vs. Par/Near Par Secondary Trading Documents—A Review and Analysis June 30, 2016 • Client Alerts
- Brexit—What We Know June 29, 2016 • Client Alerts