E.D.N.C.: In re Winslow and In re Joe Denning & Sons Farms- Non-Statutory Insiders

Summary: 11 U.S.C. § 101(31) has a list of third-parties with a statutorily defined relationship with the Debtor, which are called “statutory insiders”.  This definition, however, use the word “includes”, which makes the list non-exclusive, with such being considered “non-statutory insiders.”  (The District Court notes the oddity of the Bankruptcy Code statutorily providing for  non-statutory insiders.)

In the present independent cases, the Debtors had applied to retain Douglas Gurkins as its chief restructuring officer (“CRO”) and also sought to retain Country Boys Auction & Realty to sell assets.  The Bankruptcy Administrator objected on the grounds that Gurkins had previously been the president and principal owner of Country Boys, prior to his sale of that company to his son in 2005.

The District Court, in upholding the decision of the Bankruptcy Court, held that Country Boys must be “disinterested,” but is neither a statutory nor non-statutory insider.  “Non-statutory insider status centers on the closeness of the relationship between the debtor and the  employed professional, as well as on whether the challenged transaction was made at arm’s length.”  This analysis is not limited to looking at whether the alleged insider exercises control over the debtor, but includes consideration of the relationship between the parties.  In the present cases, the District Court held that Country Boys does not have an impermissibly close relationship with either Debtors.  Further, while Gurkins was previously the principal of Country Boys, that relationship is now “largely historical”, despite Gurkins’ son being the current principal.  Lastly, the employment of Country Boys was not improper, both because Gurkins received no money from Country Boys and because the auction commissions were let by local court rules and commission scale.

 For a copy of the opinions, please see:

Winslow-Non-Statutory Insiders.PDF

Joe Denning Farms-Non-Statutory Insiders.PDF

About

1. Bachelor of Arts degree in English Literature from Washington University, 1993. 2. Juris Doctor degree from George Washington University, 1996. Admissions to Practice of Law: North Carolina Bar, 1996. Federal District Courts for the Eastern and Middle Districts of North Carolina. Specialty Certification: North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy. Areas of Practice: Practice limited to consumer and business debtor bankruptcy law, 1998 to present. Memberships: National Association of Consumer Bankruptcy Attorneys (NACBA). North Carolina Academy of Trial Lawyers (NCATL). North Carolina Bar Association, Bankruptcy Section. Lectures prepared and presented: North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court - C.Y.A. Forms to Help 'Gird They Loins'; 2001. Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002. NACBA National Convention; Topic: Efficient Office Practices; 2003. NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004. Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004. Positions held: NACBA National Convention; Convention Chair; 2008. NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008. NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007. NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007. NACBA, Member of National Board of Directors, 2006 to present. NCATL, Chair of the Bankruptcy Section, 2003 to 2007. NACBA, Chair of the North Carolina Section, 2003 to 2007. NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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