About the Course
Introduction
This CLE webinar will review how and why creditors and other stakeholders have seen increasing success in having Chapter 11 cases dismissed for bad faith filing and arguably relaxed standards for granting dismissal. The panel will discuss recent developments in bad faith jurisprudence, what is sufficient to constitute cause for dismissal under 11 U.S.C. 1112, and how courts determine what is in the "best interests of creditors and the estate" when determining whether dismissal, conversion, or the appointment of a trustee or a receiver is the proper remedy.
Description
Testing a debtor's right to seek bankruptcy relief is a powerful tool in any case, and judges are paying attention. Almost all courts have agreed that "cause" sufficient to require dismissal or conversion under 11 U.S.C. § 1112 of a Chapter 11 case includes lack of "good faith" (aka bad faith). Starting with In re National Rifle Association of America and Sea Girt L.L.C., Case No. 21 30085 (HDH) (Bankr. N.D. Tex. 2021), creditors have had increasing success in evicting a debtor from bankruptcy.
Although courts must find cause before dismissing a case, the Bankruptcy Code does not define either cause or good faith. Different courts have taken different approaches. The Third Circuit took an unprecedented approach when it dismissed In re LTL Management L.L.C. multiple times for lack of legitimate bankruptcy purpose and lack of genuine financial distress. Subsequent courts have described financial distress as necessary but not sufficient to establish good faith; others have noted that waiting until insolvency makes reorganization more difficult. Many jurisdictions apply a totality of the circumstances test for good faith or require the subjective bad faith of the debtor before dismissing the case. Courts have also placed the burden of establishing good faith or a lack of bad faith on different parties at different times and shifted the burdens of proof as evidence is presented.
Listen as our experienced panel of bankruptcy and restructuring lawyers discusses how litigants are using motions to dismiss or convert to resist using bankruptcy as a method of resolving non-bankruptcy problems.
Presented By
Mr. Gasparri is a Partner and Business Unit Leader at Kelley Kronenberg, where he concentrates his practice on all aspects of business law and transactional matters. He has a personal focus on business transactions, mergers and acquisitions, business succession planning, and complex restructuring. With a career spanning over three decades, Mr. Gasparri is a seasoned professional with unparalleled expertise in solving enterprise problems as a business leader and lawyer. Over the years, he has successfully collaborated with many individuals and businesses, addressing a myriad of legal challenges.
Mr. Servais is a partner in Cadwalader’s Financial Restructuring Group. He has represented creditors and debtors in many of the major Chapter 11 and municipal bankruptcy cases of recent years. Mr. Servais currently represents the single largest creditor of the Commonwealth of Puerto Rico and its public corporations in restructuring proceedings under the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), the largest-ever U.S. municipal debt restructuring. He was involved in the drafting of PROMESA and in the negotiations leading up to the filing of formal insolvency proceedings. Since the PROMESA proceedings commenced, Mr. Servais has played a major role in negotiating plan support agreements for the Puerto Rico Sales Tax Financing Corporation (“COFINA”); the Commonwealth of Puerto Rico; the Puerto Rico Public Buildings Authority; the Puerto Rico Highways and Transportation Authority (“HTA”); and the Puerto Rico Convention Center District Authority. These successful negotiations led to the confirmation of plans of adjustment for COFINA, the Commonwealth of Puerto Rico, and HTA.
Mr. Silver is a shareholder at Nason Yeager with over 40 years of experience in business bankruptcy and creditors’ rights. He also has extensive experience in commercial litigation and receivership, as well as creditors’ rights litigation arising out of Ponzi and other fraudulent schemes. Mr. Silver is rated AV Preeminent by Martindale-Hubbell since 1992, which indicates a demonstration of the highest professional and ethical standards and is the highest rating a lawyer can receive. He graduated in the top 3% of his law school class and served as the Associate Research Editor of the University of Miami Law Review.
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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Date + Time
- event
Tuesday, December 9, 2025
- schedule
1:00 p.m. ET./10:00 a.m. PT
I. Background: the role of dismissal motions in the bankruptcy process
A. Benefits of bankruptcy for the debtor and legitimate uses of the bankruptcy process
B. Reasons creditors might want to seek dismissal
II. Section 1112(b) vs. related/similar creditor remedies
A. Dismissal vs. stay relief
B. Dismissal under 1112(b) vs. dismissal under 305(a)
C. Dismissal vs. conversion (leads into discussion of 1112)
1. 1112(b)(1): “best interests of creditors” standard for deciding between dismissal and conversion
III. Statutory structure and standards under 1112(b)(1)
A. 1112(b)(1): dismissal for “cause”
B. 1112(b)(4): enumerated examples of “cause”
C. “bad faith” as an unenumerated form of “cause”
D. Standards applied in assessing “cause” / “bad faith”
1. “Totality of circumstances” (most courts)
2. Fourth Circuit test: subjective bad faith + objective futility
IV. Common fact patterns for seeking dismissal
A. Bankruptcy as just a litigation tactic
B. Dismissal in case of a two-party dispute
C. Quitclaim deed on the eve of foreclosure sale
1. Case example?
D. Serial filers
1. Changed circumstances: tsunami example
2. Repeat filings to prevent foreclosure sale
3. Re-filings after dismissed cases
4. Legitimate reasons for serial filings
E. Attempt to benefit non-debtor, e.g. through release
1. Purdue
F. Lack of financial distress
1. Example of lack of financial distress: LTL
2. Examples of sufficient financial distress: Bestwall / AIG
3. Financial distress (required) vs. Insolvency (not required)
G. Lack of authorization for filing (e.g., special purpose entities, or “spes”)
1. 301 North Avenue, LLC: case dismissed due to lack of authorization by independent director
2. First Brands: numerous pending motions to dismiss based on lack of authorization of SPE debtors to file, combined with “bad faith” allegations
V. “How to” strategies for creditors seeking dismissal
A. How to marshal evidence to support dismissal
VI. Debtor strategies to counter dismissal
VII. “Unusual circumstances” exception under section 1112(b)(2)
The panel will consider these and other important issues:
- Why have courts been more willing to find bad faith than in the past?
- What is the standard for "best interests of creditors and the estate"?
- At what point in time is bad faith assessed?
- Is insolvency a prerequisite to filing a Chapter 11 case?
- What is "imminent" or "immediate" financial distress?
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