The legal landscape is experiencing evolution as the controversy over the extent to which sovereign immunity of Governmental Units (as defined in the Bankruptcy Code) is waived in bankruptcy avoidance litigation, seems to widen. For context, it’s essential to understand that bankruptcy trustees and chapter 11 debtors-in-possession (“DIPs”) routinely seek to avoid fraudulent transfers. They use section 544(b) of the Bankruptcy Code and other applicable nonbankruptcy laws, essentially because the statutory “look-back” period under many of these nonbankruptcy laws exceeds the 2-year period ruling avoidance actions under section 548.
It is not uncommon for Governmental Units (a term that includes any governmental entity that has the power to enforce a law or an order affecting property or contracts) to contest avoidance actions against them, further escalating the debate. This takes us to the crux of the matter: the implications of this sovereign immunity in bankruptcy avoidance litigation and how it plays out in the real world. Indeed, quite a significant Circuit Split has developed concerning the breadth and limit of this sovereign immunity abrogation.
A detailed analysis of this issue can be found here. It is critical for legal professionals dealing with these cases to keep up-to-date with the latest opinions, rulings and potential reforms, as it is such dynamism that makes the legal field exciting.
As you continue to navigate the complexities of the legal world, let’s remember that these legal conundrums serve as the building blocks for a better understanding, interpretation and application of the law. Therefore, while it’s important to keep abreast with recent developments, it’s equally essential to examine how they fit into the broader context of our legal system.