By Cole Hayes

Your client bought into an existing business after reviewing the books, which showed a six-figure net revenue. He was shown letters of intent from eight new customers promising to double that figure in a year. Unfortunately, it was all a sham; the business had not actually turned a profit since 2015. Your client has a slam dunk fraud claim and will easily be awarded punitive damages.

After negotiating a substantial contingency fee, you plead every cause of action you can come up with: breach of contract, fraud, unfair and deceptive practices, negligence, negligent misrepresentation, breach of fiduciary duty, etc. You collect dozens of boxes of documentary evidence, depose former employees, the defendant, his wife, and the manager of the casino in Atlantic City where they blew your client’s “investment” playing craps.

After the defendant knocked out a few of your claims prior to the trial, opening arguments begin. Two weeks of testimony later, you are sitting with a coy smile as the superior court judge reads the pattern jury instructions to the twelve good folks who will certainly see through the defendant’s fairy-tale and award your client a hefty judgment. They do, of course, and after just three minutes.

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By Abigail Henderson

In addition to explicitly creating certain procedures and means of protection for debtors and creditors in bankruptcy, Bankruptcy Code provisions define the Trustee’s role and the extent of the Trustee’s powers in bankruptcy proceedings. The effect of the Code is twofold: it both equips the Trustee with the powers necessary to perform the Trustee’s role and, at least historically, has allowed North Carolina creditors and transferees to find some assurance that after four years, they are no longer exposed to the risk of an avoidance action. Recently, however, courts have increasingly adopted case law that expands the Trustee’s reach and undermines the four-year safe harbor for transferees.

Section 544(b) of the Bankruptcy Code provides the Trustee the authority to avoid any transfers to unsecured creditors by the debtor which are voidable under “applicable law by a creditor holding an unsecured claim.” Traditionally, this has meant that in cases in North Carolina the Trustees could avail themselves of the statute of limitations provided for in North Carolina’s Uniform Voidable Transactions Act—four years from when the transfer was made or, in certain circumstances, a year after the transfer was or reasonably should have been discovered.

However, as of late, Trustees across the country have begun to use section 544(b) to assume the benefits not just of the state law on voidable transfers, but also the those afforded to the IRS under both the Federal Debt Collections Procedures Act (“FDCPA”) and the Internal Revenue Code (“IRC”) in cases where the IRS has an unsecured claim against the estate. This adds several more means of recovery to Trustees, including but not limited to the ten-year look-back period for voiding transactions under the IRC or, as most recently applied in South Carolina, by avoiding transfer by disclaimer.

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By John Small

Dear Members of the Bankruptcy Section:

The first Bankruptcy Section Council meeting was held on August 22 in Raleigh. The Council adopted the Section’s budget for 2019-20 fiscal year. The budget provides for more funds for networking events and for certain costs related to the 2019 Annual Bankruptcy Institute, including $4,000 to reduce the cost of the annual seminar, keeping the price of the annual seminar under $500 for those registering as section members at the early bird rate.

The Council received a report from Pam McAfee and Margaret Westbrook, co-chairs for planning the 2019 Annual Bankruptcy Institute to be held in Wilmington on November 22-23. The keynote speaker will be Irving Picard, who is the trustee in the Bernie Madoff bankruptcy cases. This seminar will also feature new formats, including a judge’s roundtable and a trial demonstration. We hope to see you at the seminar and the networking events in Wilmington.

The Section’s new Networking Committee reported on its initial activities and future plans for this year. The Committee is seeking to have networking events in each district, in addition to the networking events associated with the Annual Bankruptcy Institute and the Council meetings. It is currently working to schedule an event on Thursday night of the Annual Bankruptcy Institute to welcome participants and provide opportunities to connect with others. Please contact one of the Committee chairs—Cindy Oliver, Samantha Brumbaugh, or Andy Houston—with any other ideas you may have for networking events.

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By Rebecca F. Redwine

Bankruptcy attorneys bring renewed hope and greater stability to our NC communities through skillful pro bono work. Excellence in this vital task deserves to be acknowledged, and the North Carolina Bar Association Bankruptcy Law Section will be celebrating the exemplary pro bono efforts of at least one of its own on Nov. 22 at the 42nd Annual Bankruptcy Institute in Wilmington.

To that end, the Bankruptcy Law Section is now seeking third-party and self nominations for the 2019 Pro Bono Award. This will be the fifth year that the Section will honor one of its members with this distinction. Prior recipients include Michael Martinez (2018), Matt Crow (2017), Jennifer Bennington (2016) and Ciara Rogers (2015).

For more information about the award, and to make a nomination, please see the official nomination form.

By Ciara L. Rogers

The Stubbs Bankruptcy Clinic, a clinical program provided by Campbell University’s Norman A. Wiggins School of Law, began in the fall of 2014. The clinic was created to assist low-income individuals who would otherwise not have access to legal representation during the bankruptcy process. In the nine semesters that it has been in operation, the clinic has filed thirty-seven bankruptcy cases, including chapter 7 and 13 cases, and even a chapter 11 case. Additionally, the clinic has represented one creditor in an adversary proceeding and provided an additional twenty-five people with legal advice about the bankruptcy process and referrals to bankruptcy practitioners. In some instances, the demand for the clinic’s services exceeds its ability to provide services.

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