On Monday, Jan. 22, 2024, the United States Court of Appeals for the Fifth Circuit entered a ruling in the South Coast Supply Company case, Briar Capital Working Fund Capital v. Remmert (In re South Coast Supply), Case No. 22-20536, Doc. No. 00517039869 (5th Cir. Jan. 22, 2024), allowing a bankrupt debtor to sell preference claims arising under section 547 of the Bankruptcy Code. (Title 11 of the United States Code, sections 101 et seq., is generally referred to as the Bankruptcy Code.) In doing so, the Fifth Circuit overruled the district court, which followed a long body of case law holding that debtors in possession could not sell avoidance actions. South Coast Supply, p. 5: ("the district court followed cases from bankruptcy courts ruling that outright sales of preference actions under 11 U.S.C. Section 547 are impermissible"). The Fifth Circuit's ruling in South Coast Supply will have meaningful effects on players in bankruptcy cases. Debtors have an immediately saleable asset that they can use to generate funds. Parties that lend money to debtors after the commencement of a bankruptcy case are generally referred to as "DIP Lenders" (DIP meaning debtor-in-possession). DIP lenders may subject avoidance actions to liens to secure post-petition loans. Official committees of unsecured creditors may now lack the leverage of judicial ambiguity within the Fifth Circuit once used to preserve avoidance actions for the exclusive (or sometimes shared) benefit of general unsecured creditors. 

The Fifth Circuit's decision follows a logical analysis. First, the court recognizes that congressional authority supports a broad reading of what should be considered "property of the estate" under section 541(a)(1) of the Bankruptcy Code. Next, the court acknowledged that under section 541 of the Bankruptcy Code, property of the debtor's estate includes "all kinds of property" including "causes of action." Id. at 8 (citing In re Equinox Oil, 300 F.3d 614, 618 (5th Cir. 2002)).