The United States Court of Appeals for the Third Circuit in Philadelphia has overturned a Sept. 20 ruling on the bankruptcy of Cybergenics Corp. which denied the company's creditors' committees the right to bring a claim against the senior bank lenders. The original ruling was a literal interpretation of a part of the bankruptcy code that has been more loosely interpreted by other circuit courts.
The original ruling by a panel of three judges had roiled bankruptcy law by essentially taking creditors' committees out of the picture, leaving debtors and unsecured creditors with weak checks and balances in place to prevent lending banks from delineating where assets from a given bankrupt company will go.
The full court's May 29 opinion, overturning the panel decision, was split seven to four, but now brings the Third Circuit court back in line with established precedent in other circuits, said Gary Sesser, an attorney at Carter, Ledyard & Milburn, which represented the creditors' committee in the Cybergenics case.