Document Type
Research Memorandum
Publication Date
2024
Abstract
(Excerpt)
Section 101(31) of title 11 of the United States Code (the "Bankruptcy Code") defines an "insider." This definition, however, is not exhaustive. Courts have concluded that certain persons or entities not mentioned in the statute can be "non-statutory" insiders. In certain circumstances, a statutory or non-statutory insider may be the alter-ego of a debtor. As an alter-ego, an insider may be liable for a debtor’s debt. Alter-ego liability may be imposed on an insider who significantly controls the debtor and has committed some form of injustice.
This memorandum discusses an insider’s possible liability for a debtor’s debt in the Second and Third Circuits. Part I discusses "statutory insider" and "non-statutory insider." Part II outlines the factors of an alter-ego claim. Parts III and IV examine when an insider is or is not an alter-ego of a debtor, which typically hinges on the amount of control an alleged insider asserts over a debtor. Specifically, Part III examines when an insider has been held liable, while Part IV examines when an alleged insider has not been held liable for a debtor’s debt.