In re Matter of GFS Industries, LLC

By: Uzzi O. Raanan

Fifth Circuit Court of Appeals disagrees with the Ninth Circuit BAP as to whether corporate debtors can be sued for nondischargeability under 11 U.S.C. section 1192(2) in subchapter V cases, setting up a future challenge in the Ninth Circuit Court of Appeals

The Fifth Circuit Court of Appeals has held that nondischargeability provisions of the kind specified in 11 U.S.C. section 523(a) apply to individual and corporate debtors who confirm nonconsensual plans of reorganization under subchapter V of chapter 11 of the Bankruptcy Code.  In re Matter of GFS Industries, LLC, 99 F.4th 223 (April 17, 2024).  To read the entire opinion, click here:

Acknowledging that the issue is a “close and interesting one,” the GFS Industries court sided with the Fourth Circuit’s Cantwell-Cleary Co. v. Cleary Packaging, LLC (In re Cleary Packaging, LLC), 36 F.4th 509 (4th Cir. 2022), the only other circuit level decision to consider the issue.  The ruling disagrees with the opposite conclusion reached by the Ninth Circuit Bankruptcy Appellate Panel (BAP) in In re Off-Spec Solutions, LLC, 651 B.R. 862 (2023), that 11 U.S.C. section 1192 does not make the nondischargeability provisions of Section 523(a) applicable to corporate debtors.

At least one bankruptcy judge in the Ninth Circuit has recently predicted that the Ninth Circuit Court of Appeals would likely agree with the Fourth and Fifth Circuits’ interpretation of Section 1192, rather than with the Off-Spec ruling.  See In re Van’s Aircraft, Inc., 2024 WL 2947601 (Bankr. D. Oregon, June 11, 2024).