[Co-Author: J.J Moser, Law Clerk]
Section 303(i) of the Bankruptcy Code authorizes the court to award the debtor sanctions on account of an improper filing of an involuntary petition against it. But can a non-debtor third-party obtain such a relief? Yes, says the Bankruptcy Court In In re Vascular Access Centers, L.P., No. 19-17117 (AMC), 2022 WL 17366463 (Bankr. E.D. Pa. Dec. 1, 2022).
Dr. James McGuckin thought an unusual involuntary bankruptcy filing against Vascular Access Centers, L.P. (VAC) would provide him with an innovative way to delay a payout as part of a derivative litigation against VAC in which he was found liable. After the Bankruptcy Court’s December 1, 2022 decision, McGuckin’s liability evasion tactic has ended up costing him $1,417,861.75 in sanctions in which Court not only admonished McGuckin’s behavior, but it also awarded significant sanctions against him and an entity under his control for their conduct in filing a bad faith involuntary bankruptcy petition against VAC.
These unique circumstances provide a case study on what can go wrong when a party forces a debtor into bankruptcy using unscrupulous means for self-preservation. The result also shows the extent to which bankruptcy courts will make sure that parties are held accountable for bad faith involuntary petitions. Notably, the beneficiary of these sanctions was not the debtor, but William Whitfield Gardner, VAC’s majority limited partner who opposed the involuntary bankruptcy...
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