Last week, the Second Circuit established an “efficient market”-based approach for calculating cramdown interest rates. Adopting a test established by the Sixth Circuit, the Second Circuit held that courts must apply a market interest rate where an efficient market exists. See Momentive Performance Materials Inc. v. BOKF, NA (In the Matter of: MPM Silicones, L.L.C.), — F.3d —-, 2017 WL 4700314, No. 15-1682, (2d Cir. Oct. 20, 2017). The decision will be welcomed by secured creditors (and distressed investors) who previously could be forced to accept replacement debt with below-market interest rates under a chapter 11 plan. Lower “formula”-based interest rates are still possible in the Second Circuit, but only where a market does not exist for comparable new debt.
Norton Rose Fulbright released its Restructuring Newswire for the Fall 2017. Find the following topics in this issue:
- Supreme Court to decide scope of safe harbor protections against avoidance claims
- Extraterritoriality and the Bankruptcy Code: the uncertain reach of the US avoiding powers
- Sales of inventory: Third Circuit clarifies the meaning of “received” under section 503(b)(9) of the Bankruptcy Code
- Chapter 15 developments: United States enforce Canadian restructuring plans
To read the Newswire, click here.
A bankruptcy filing by one company does not necessarily mean that its affiliates will also file for bankruptcy. It is common for a financially distressed company to file for bankruptcy while its financially sound affiliates continue business operations in the ordinary course. The bad news, however, is that a court may disregard a company’s decision not to file for bankruptcy in connection with an affiliate bankruptcy filing if the company is managed and operated in a manner that disregards the corporate separateness between it and affiliates(s) that have filed for bankruptcy. Consequently, the assets of a non-debtor company may be made available to satisfy creditors of affiliates in the bankruptcy cases of those affiliates. However, the good news is that while such “substantive consolidation” of non-debtors with debtors is possible, it is generally unlikely. Indeed, if a single creditor of the non-debtor company will be harmed by the substantive consolidation of such company with affiliates in bankruptcy, the risk of such substantive consolidation becomes relatively remote. This scenario recently played out in a case pending in the Western District of Oklahoma. See In re Stewart, Adv. No. 16-1117, Doc. No. 163 (Bankr. W.D. Okla. Aug. 17, 2017). Continue Reading
Last month, the Bankruptcy Court for the Southern District Of New York overruled an objection to proposed substantive consolidation provisions included in the plan of reorganization for Republic Airways Holdings Inc. See In re Republic Airways Holdings Inc., 565 B.R. 710 (Bankr S.D.N.Y. 2017). The bankruptcy court’s ruling provides a good refresher on the requirements of substantive consolidation in the Second Circuit. More importantly, the decision shows the importance that diligence plays not only at the time a lender/creditor enters into a transaction with its borrower, but also later on if both the borrower and the borrower’s guarantor end up in bankruptcy. Continue Reading
Earlier today, in Czyzewski v. Jevic Holding Corp., the Supreme Court put an end to “structured dismissals” that allow a debtor to leave bankruptcy while circumventing the Bankruptcy Code’s creditor payment priority scheme.
A Chapter 11 debtor generally has three options for exiting bankruptcy: (1) a confirmed plan of reorganization (or liquidation); (2) conversion to Chapter 7 and liquidation of the debtor’s estate; or (3) dismissal of the bankruptcy case entirely. Chapters 11 and 7 both broadly require the debtor’s estate to make distributions to creditors in accordance with a statutorily mandated order of priorities (although Chapter 11 provides more flexibility than Chapter 7 in this respect). Continue Reading
Serving on a court-appointed bankruptcy committee can come with many benefits, and the list just got a little longer. In Blixseth v. Brown, the Ninth Circuit held that committee members enjoy some of the same protections as trustees when it comes to potential attacks for actions taken during a bankruptcy case. Applying the Barton doctrine, the court held that a committee member could not be sued outside the bankruptcy court for actions taken in its committee member capacity without bankruptcy court approval.
In the late 1990s, Timothy Blixseth (“Blixseth”) and Edra Blixseth (“Edra”), then husband and wife, developed the Yellowstone Mountain Club (together with its subsidiaries and related entities, “Yellowstone”), an exclusive ski and golf resort in Montana that caters to the “ultra-wealthy.” Blixseth was advised by his lawyer, Stephen Brown (“Brown”), in his business activities and, later, in his divorce from Edra. As part of the divorce, Edra received the Yellowstone companies. Continue Reading
A recent decision by Judge Sontchi in the Bankruptcy Court for the District of Delaware casts some light on the methods that representatives of non-U.S. debtors can—and can’t—use to track down those who owe such debtors money.
The Representatives of the Irish liquidation proceeding for Irish Bank Resolution Corporation Limited (“IBRC”) obtained recognition of the Irish proceeding under Chapter 15 of the Bankruptcy Code on December 18, 2013. Following that recognition, the Representatives sought to use the discovery mechanisms available in the United States to gain access to the contents of a Yahoo email account maintained in the name of “Abdullah Rasimov.” IBRC is owed approximately €2.8 billion for loans it advanced to companies owned or controlled by Seán Quinn and his five adult children. Based on anonymous tips and confidential discovery conducted before the English High Court, the Representatives believe that the Rasimov account is associated with Séan Quinn’s attempts to evade repayment of the €2.8 billion. Continue Reading
Under the Bankruptcy Code, a creditor may be reimbursed its actual and necessary expenses in making a “substantial contribution” in a chapter 9 or 11 case. Whether a creditor has made a substantial contribution is a question of fact, but generally requires that a creditor demonstrate a tangible benefit to the estate. It is unlikely that a creditor would “throw good money after bad” and attempt to make a substantial contribution in a chapter 7 case where creditor recoveries are typically limited to pennies on the dollar. There may nevertheless be instances where a creditor’s actions substantially contribute to a chapter 7 case and yield an increase recovery for all creditors. Despite the lack of express authority to reimburse such expenses as an administrative expense outside of chapter 9 or 11, a divided United States Court of Appeals for the Sixth Circuit recently concluded that a creditor could be awarded its expenses that substantially benefit a chapter 7 estate. See In re Connolly North America, LLC, No. 13-2489 (6th Cir. Sept. 21, 2015). Continue Reading
Chadbourne & Parke LLP currently represents the English liquidators of Hellas Telecommunications (Luxembourg) II SCA, a company that formerly owned one of the largest mobile phone operators in Greece. On behalf of the English liquidators, in 2012 Chadbourne obtained an order from the US Bankruptcy Court from the Southern District of New York granting Chapter 15 recognition of Hellas II’s liquidation proceeding. In March 2014, on behalf of the English liquidators, Chadbourne filed a lawsuit in the New York bankruptcy court asserting New York fraudulent transfer law and unjust enrichment claims and seeking the recovery of approximately €1 billion that was siphoned out of Hellas II as part of a dividend recapitalization by, among others, private equity giants TPG Capital Management and Apax Partners. Following the bankruptcy court’s dismissal of the New York law-based fraudulent conveyance claims, Chadbourne, on behalf of the liquidators, requested leave to file an amended complaint to assert, in addition to a surviving unjust enrichment claim, a fraudulent transfer claim under section 423 of the UK Insolvency Act, a fraudulent trading claim under section 213 of the UK Insolvency Act, and, in the alternative, a fraudulent transfer claim under Article 1167 of the Luxembourg Civil Code and Article 448 of the Luxembourg Commercial Code. Ultimately, the bankruptcy court authorized the liquidators to assert their English law claims (in addition to the surviving New York law unjust enrichment claim), clearing the way for the liquidators to move ahead in seeking recovery from TPG, Apax, and others.
There has been a lot of discussion, by both the courts and practitioners, regarding whether the bankruptcy court, as part of a chapter 11 plan, can release a third party from creditors’ claims over the objection of such creditors. We have talked about these non-consensual third-party releases on this blog as well. Courts are not unanimous on this issue, and the controversy provides something to talk about. Less time is spent discussing the less remarkable statement that bankruptcy courts can approve third-party releases when creditors consent to such release. However, what constitutes consent?
Earlier this summer, the bankruptcy court for the Southern District of New York confirmed the chapter 11 plan of reorganization for Chassix Holdings, Inc. and its affiliates. In overruling objections to the plan, the court provided some guidance on what constitutes “consent” by creditors to third-party releases. See In re Chassix Holdings, Inc., et al., 533 B.R. 64 (Bankr. S.D.N.Y. 2015). Continue Reading