Fraud in Bankruptcy & Restructuring Toolkit | Practical Law

Fraud in Bankruptcy & Restructuring Toolkit | Practical Law

Resources concerning issues faced before and during fraud-based bankruptcy and restructuring proceedings, including strategies, timelines, overviews, and in-depth analyses of the key parties and considerations in bankruptcies resulting from a debtor's actual or alleged fraud or misconduct. This Toolkit focuses on resources that discuss cross-border considerations, the risk of conversion, dismissal, or appointment of a trustee or examiner, exceptions to the automatic stay for criminal and certain governmental actions, bankruptcy fraud statutes, director and officer (D&O) considerations, claim disallowance and subordination, denial of a Chapter 7 discharge based on fraud, broker-dealer insolvencies, cryptocurrency fraud considerations; and non-dischargeable debts in individual bankruptcy cases.

Fraud in Bankruptcy & Restructuring Toolkit

Practical Law Toolkit w-030-7849 (Approx. 13 pages)

Fraud in Bankruptcy & Restructuring Toolkit

by Practical Law Bankruptcy & Restructuring
MaintainedUSA (National/Federal)
Resources concerning issues faced before and during fraud-based bankruptcy and restructuring proceedings, including strategies, timelines, overviews, and in-depth analyses of the key parties and considerations in bankruptcies resulting from a debtor's actual or alleged fraud or misconduct. This Toolkit focuses on resources that discuss cross-border considerations, the risk of conversion, dismissal, or appointment of a trustee or examiner, exceptions to the automatic stay for criminal and certain governmental actions, bankruptcy fraud statutes, director and officer (D&O) considerations, claim disallowance and subordination, denial of a Chapter 7 discharge based on fraud, broker-dealer insolvencies, cryptocurrency fraud considerations; and non-dischargeable debts in individual bankruptcy cases.
Fraud, whether alleged or actual, can lead to significant litigation and financial distress making bankruptcy an option for entities seeking to resolve liability and recover assets for the benefit of creditors. Companies facing fraud allegations can use Chapter 11 as a way to restructure the business and address claims either by filing a voluntary petition or after an involuntary filing by creditors. In rarer cases, the company or its creditors may consider liquidating under Chapter 7.
Before seeking bankruptcy protection as a means to resolve fraud-based liabilities, owners, directors, and officers should first understand the unique features and risks of fraud-based bankruptcies, including:
  • The key parties in a bankruptcy case.
  • Unique bankruptcy disclosure obligations and discovery tools.
  • Statutes criminalizing fraudulent activity related to bankruptcy.
  • Bankruptcy tools available to recover assets for the estate.
  • Cross-border implications where operations, assets, or litigation claims are located outside the US.
  • Broker-dealer insolvencies under the Bankruptcy Code and Securities Investor Protection Act (SIPA).
  • Risk of case dismissal, conversion to Chapter 7, or the appointment of a trustee or examiner.
  • Continuation or commencement of non-bankruptcy civil and criminal government actions.
  • Director and officer (D&O) considerations.
  • The allowance and treatment of fraud-based claims.
  • Denial of a Chapter 7 discharge based on fraud.
  • Nondischargeability of certain debts in individual bankruptcy cases.
This Toolkit contains links to continuously maintained Practice Note Overviews, Practice Notes, Standard Documents, Checklists, and a Chart to help develop strategies to address the issues that can arise in bankruptcy and restructuring cases resulting from fraudulent activity with a focus primarily on corporate debtors.