In March 2016, the U.S. Court of Appeals for the Seventh Circuit ruled that a landlord may be liable to a debtor's bankruptcy estate for the value of a lease the debtor terminated early, holding the termination may be an "avoidable transfer" under the Bankruptcy Code.1

The opinion in Official Comm. of Unsecured Creditors v. T.D. Invs. I, LLP (In re Great Lakes Quick Lube LP)2 reversed the Bankruptcy Court's ruling, and in doing so perhaps expanded the definition of a "transfer" under the Bankruptcy Code.

Background
The debtor in the case, Great Lakes Quick Lube LP (the "Debtor"), operated more than 100 oil-change stores before it filed bankruptcy. The Debtor leased its locations and, two months before it filed bankruptcy, decided to terminate two of its leases with T.D. Investments I, LLP (the "Landlord"), even though the two stores were profitable.

The debtor in the case, Great Lakes Quick Lube LP (the ""), operated more than 100 oil-change stores before it filed bankruptcy. The Debtor leased its locations and, two months before it filed bankruptcy, decided to terminate two of its leases with T.D. Investments I, LLP (the ""), even though the two stores were profitable.

 

To read the full article, download "Termination of a Commercial Lease May be an "Avoidable Transfer" in Bankruptcy, holds Seventh Circuit."