A creditor on behalf of the company sues its controllers and advisors for looting the company, and the company files for bankruptcy, which stays the litigation and shifts the authority to pursue the claims from the creditors to a Chapter 7 trustee. What happens to those claims if the trustee decides not to pursue them? In a recent decision, Artesanias Hacienda Real S.A. de C.V. v. North Mill Capital (In re Wilton Armetale), 968 F.3d 273 (3rd Cir. 2020), a panel of the U.S. Court of Appeals for the Third Circuit held that if the trustee abandons those claims, they revert back to the creditors who had them before the bankruptcy. Those creditors then have both constitutional standing and statutory standing to pursue those claims.

The facts of the case fit a common, recurring pattern, albeit somewhat complicated. As set forth in the opinion, Artesanias Haciendas Real sold goods to Wilton Armetale, which never paid for them. Artesanias obtained a judgment against Wilton and all the owner’s shares in Wilton, which were transferred to an affiliate of Artesanias. Artesanias also recorded its judgment as a lien on a valuable warehouse that Wilton owned.

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