For unsecured creditors of a bankrupt company, the road to satisfaction is a long and uncertain one. Between reduced asset valuations in a forced sale scenario, claims of secured and priority creditors, and the costs of administering of an estate, unsecured creditors may be fortunate to receive even a de minimis distribution on account of their claims. This result can be particularly frustrating for creditors who, through great expenditures of time and resources, pursued pre-petition litigation against the parties responsible for the systematic dissipation of the bankrupt company’s assets, only to see those claims placed with a trustee who may decide that continued pursuit of them is not in the estate’s best interests, leaving no path forward for the plaintiff creditor. In its recent decision in In re Wilton Armetale, 968 F.3d 273 (3d Cir. 2020) (“Wilton”), however, the United States Court of Appeals for the Third Circuit removed one major obstacle to creditors in these situations by confirming that standing is not an obstacle to them taking the baton back from the trustee and continuing the litigation under certain circumstances.

The Facts of ‘Wilton’

Wilton involved a scenario common to many insolvent corporations: Artesanias Hacienda Real S.A. de C.V. (“Artesanias”) sold merchandise on credit to Wilton Armetale, Inc. (the “Debtor”), which never paid for the merchandise. Artesanias sued the Debtor and its then-owner, who had personally guaranteed payment, and obtained a judgment for approximately $900,000. Among other collection measures, Artesanias recorded its judgment as a lien on the Debtor’s warehouse property and executed upon the owner’s shares in the Debtor.