Insider may be an alter-ego when it exercises control over a debtor

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