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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Bankruptcy 'Plunderers' Can Be Sued by Creditors, Third Circuit Rules

By P.J. D'Annunzio
September 01, 2020

The U.S. Court of Appeals for the Third Circuit has ruled in a precedential decision that in cases where a trustee has abandoned a bankrupt entity, a creditor can nevertheless sue those who "plunder" a near-insolvent company of its remaining assets.

A three-judge appellate panel reached its decision in the case of In re Wilton Armetale, where Artesanias Hacienda Real sued North Mill Capital and Leisawitz Heller.

As Third Circuit Judge Stephanos Bibas explained: "When a company declares bankruptcy, that declaration does not erase a creditor's constitutional standing to sue. As a company nears insolvency, some may plunder the sinking ship. By depleting its remaining assets, they lower the odds that the company will repay its creditors."

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