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It is a nightmare of any trustee and their counsel: The two-year time frame to seek recovery under 11 U.S.C. § 546 is about to expire. What seemed like an eternity - and two years is clearly an eternity in the fast-moving legal world that we all now inhabit - has now become the present. Regardless of the reasoning, the trustee needs more time to make a determination of whether valid avoidance actions exist.
Meanwhile, if you are representing the potential target of those avoidance actions, the two-year mark could potentially spell sweet relief for your client. These two opposing forces meet when the trustee seeks to extend the deadline and the potential defendant opposes that extension. This article does not address timeliness, standing or other various issues that could be raised at this critical juncture, but instead focuses on the mundane issue of whether § 546 is a statute of limitations or operates as a jurisdictional bar. Let's start with the Bankruptcy Code and the Rules. Under § 546(a),
(a) An action or proceeding under section 544, 545,547, 548, or 553 of this title may not be commenced after the earlier of -
(1) the later of -
(A) [two] years after the entry of the order for relief; or (B) [one] year after the appointment or election of the first trustee under section 702,1104, 1163, 1202, or 1302 of this title if such appointment or such election occurs before the expiration of the period specified in subparagraph (A); or
(2) the time the case is closed or dismissed.'
Counsel for those possible avoidance targets argue, with limited success, that the § 546(a) deadlines were jurisdictional in nature, precluding the application of Rule 9006 of the Federal Rules of Bankruptcy Procedure (FRBP). Rule 9006(a), which parallels Rule 6(a) of the Federal Rules of Civil Procedure (FRCP), applies when computing any time period specified in the FRBP, the FRCP, any local rule or court order, or any statute that does not specify a method of computing time.2 In turn, Bankruptcy Rule 9006(b)(1) states:
[W]hen an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of the court,...