Zone of Insolvency

Zone of Insolvency

Tag Archives: Chapter 11 Plans

Chapter 11 Plan for a Group of Debtors May Be Confirmed if Approved by Creditors of a Single Debtor

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In a matter of first impression at the Circuit level, the United States Court of Appeals for the Ninth Circuit held that a court may confirm a plan filed on behalf of multiple debtors that has been approved by an impaired class of creditors of only one of the debtors. JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Properties Inc. (In re Transwest Resort Properties, Inc.), 881 F.3d 724 (9th Cir. 2018). This ruling is in contrast with the Delaware bankruptcy court’s ruling in the Tribune Company Chapter 11 case, where as successfully advocated by Norton Rose … Continue Reading

Second Circuit Adopts “Efficient Market” Approach to Calculate Cramdown Interest

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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 … Continue Reading

Consensual Third-Party Releases: What Constitutes “Consent”?

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ProductionLine_117192563There 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 … Continue Reading

In re Nobel Group, Inc.: Just Kidding–The Bankruptcy Court Doesn’t Really Have Jurisdiction After All

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ThinkstockPhotos-89679735In Nobel Group, Inc. v. Cathay Bank (In re Nobel Group, Inc.), the Bankruptcy Court for the Northern District of California reviewed the scope of its jurisdiction post-confirmation and held that, notwithstanding plan provisions stating the contrary, the court did not have jurisdiction over the reorganized debtor’s claims asserted against its previously secured creditor.… Continue Reading

Non-Consensual Third-Party Releases: Eleventh Circuit Joins “Pro-Release” Majority

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ThinkstockPhotos-99188298Circuit courts are divided as to whether provisions of a bankruptcy plan of reorganization may release a non-debtor from creditors’ claims over the objection of a non-consenting creditor (i.e. non-consensual third-party releases). A majority of courts will permit non-consensual third-party releases under certain limited circumstances. This issue has been in the news recently with speculation that the treatment of non-consensual third-party releases was a contributing factor in the decision by the debtors in the Caesars bankruptcy cases to file for bankruptcy in the Bankruptcy Court for the Northern District of Illinois (which is located in the Seventh Circuit—a circuit that … Continue Reading

Don’t Forget to Object!

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526495477On January 23, 2015, the Eleventh Circuit recognized the res judicata effect of provisions contained in a bankruptcy plan of reorganization that released all claims against a third-party guarantor. In deciding In re FFS Data, Inc., the court examined (i) the plain language of the plan provisions to determine whether a particular claim was included in the stated releases and (ii) whether the requirements for res judicata were met such that the confirmation order should be given preclusive effect.

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Determining the Cramdown Interest Rate: The Burden is on the Creditor

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177437418Following Judge Drain’s decision in Momentive, many in the bankruptcy world have written about and discussed the issue of how to determine the appropriate interest rate that should be paid to secured creditors in the context of a Chapter 11 cramdown (the so-called “cramdown interest rate”). While many questions have been asked and remain unanswered, two recent decisions have confirmed that regardless of the approach used to determine the cramdown interest rate, the burden is on the creditor to provide evidence that the debtor’s proposed cramdown interest rate is too low.… Continue Reading

Stop in the Name of Equity: Second Circuit Affirms Dismissal of Appeals in Chapter 11 Liquidation Proceedings as Equitably Moot

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MissionComplete_464402679In a case of first impression, the Second Circuit recently held that the doctrine of equitable mootness is applicable in appeals arising from Chapter 11 liquidations and affirmed the decision of the Southern District of New York to dismiss the appeals of three decisions in the Chapter 11 liquidation proceedings of the former book retailer Borders.

A Primer on Equitable Mootness

The equitable mootness doctrine allows a district court to dismiss a bankruptcy appeal when the district court determines that although relief could be provided, implementation of the relief would be inequitable. In the Second Circuit, the appeal of a … Continue Reading

Momentive Noteholders’ Request to Change Vote Denied – You can’t have your cake and eat it too.

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Vote-487546457A recent decision in the Momentive cases explores the limitations of changing a vote pursuant to Bankruptcy Rule 3018. In that case, the first and 1.5 lien noteholders  initially voted to reject the debtors’ proposed plan of reorganization in order to pursue their claim for recovery of a “make-whole” payment they argued they were entitled to under the relevant indentures. On the day that Judge Drain was scheduled to read a decision regarding confirmation of the plan and the viability of the noteholders’ make-whole claims from the bench, the noteholders indicated to the judge that they wished to change their … Continue Reading