Sontchi rejects majority opinion in test to determine whether a commercial trust is an eligible debtor



What law determines whether a “business trust” can be a qualifying debtor under Chapter 11? There is a division of powers as to whether the law of the jurisdiction in which the trust resides or whether federal common law applies. The weight of authority is in favor of the application of federal common law. However, in In re EHT US1, Case No. 21-10036 (CSS), 2021 WL 2206507 (Del. Bankr. June 1, 2021), Chief Justice Christopher Sontchi disagreed with the majority consensus and held that the law of the jurisdiction in which the trust is organized will govern.

A commercial trust or a common law trust is a type of unincorporated business entity. It developed in 18th century England to bypass restrictions on the formation of companies, which required an Act of Parliament or a Charter of the Crown as a voluntary association of people to offer shares to the public without government authorization. . As it develops, a commercial trust is similar to a traditional trust in that its trustees receive legal title to the property of the trust to be administered for the benefit of its beneficiaries who have equitable title to the assets of the trust. the trust. A written declaration of trust sets out the terms of the trust, its duration, the powers and duties of the trustees and the interests of the beneficiaries. Two characteristics common to commercial trusts are as follows: First, the trust exists for the purpose of carrying out commercial transactions for profit rather than simply preserving a res for beneficiaries. Second, the de facto trust has all the clues of a legal person. If both of these are present, then the relevant trust is more than a free or ordinary trust and is a commercial trust.


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