An issue that is often overlooked, but should be considered in the context of large project transactions, is the potential insolvency of contractors and subcontractors. A bankruptcy proceeding involving a key contractor can cause headaches and costly delays, particularly if title to goods or work completed has not been transferred to a project owner. Accordingly, anticipating these types of issues and accounting for them in negotiating construction and supply contracts is an important step in any large project transaction.

In a pro-debtor opinion released on February 26, 2013, the Fifth Circuit Court of Appeals held that a debtor may “artificial impair” claims in a class to obtain an impaired and accepting class of claims as required by section 1129(a)(10) of the Bankruptcy Code. Western Real Estate Equities, L.L.C. v. Village at Camp Bowie I, L.P. (In re Village at Camp Bowie I, L.P.), No. 12-10271, 2013 WL 690497 (5th Cir. Feb. 26, 2013).

Statutory Background to the Artificial Impairment Issue

Most people think of an oil and gas mineral “lease” as, so named, a lease. However, this common thinking is not necessarily accurate, both with respect to state and federal law and in particular in the bankruptcy courts in the United States.

In an important opinion released on November 27, 2012, Judge Shelley C. Chapman of the United States Bankruptcy Court for the Southern District of New York transferred the Patriot Coal Corporation (Patriot Coal) chapter 11 bankruptcy cases from the Southern District of New York to the Eastern District of Missouri. This decision comes as a surprise to many observers who had expected, based on prior failed attempts to change venue in Enron and other large cases filed in the Southern District of New York, that Judge Chapman would defer to the Debtor’s choice of venue.