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The Bankruptcy Hotline
Ninth Circuit Pre-empts State Law Allowing Assignee to Void Preferential Transfers
The Ninth Circuit has ruled that the Bankruptcy Code preempts California Civ. Proc. Code ' 1800(b), which permits an assignee selected by the debtor to void preferential transfers that could not be voided by an unsecured creditor. Sherwood Partners Inc. v. Lycos Inc., No. 03-55247 (Jan. 12).
In reversing the district court, the Ninth Circuit ruled that statutes “that give state assignees or trustees avoidance powers beyond those that may be exercised by individual creditors trench too close upon the exercise of the federal bankruptcy power.” The court concluded that “Congress has thought carefully about how collective insolvency proceedings are to be conducted and set both substantive standards and elaborate procedural protections to ensure a result that is fair to debtors and creditors alike. The exercise of the preference avoidance power by [an assignee] under the authority of section 1800 is inconsistent with the enactment and operation of the federal bankruptcy system and is therefore pre-empted.”
Ninth Circuit Pre-empts State Law Allowing Assignee to Void Preferential Transfers
The Ninth Circuit has ruled that the Bankruptcy Code preempts California Civ. Proc. Code ' 1800(b), which permits an assignee selected by the debtor to void preferential transfers that could not be voided by an unsecured creditor. Sherwood Partners Inc. v. Lycos Inc., No. 03-55247 (Jan. 12).
In reversing the district court, the Ninth Circuit ruled that statutes “that give state assignees or trustees avoidance powers beyond those that may be exercised by individual creditors trench too close upon the exercise of the federal bankruptcy power.” The court concluded that “Congress has thought carefully about how collective insolvency proceedings are to be conducted and set both substantive standards and elaborate procedural protections to ensure a result that is fair to debtors and creditors alike. The exercise of the preference avoidance power by [an assignee] under the authority of section 1800 is inconsistent with the enactment and operation of the federal bankruptcy system and is therefore pre-empted.”
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