There is no set of fixed rules when negotiating intercreditor arrangements as every deal is fact-specific, generally subject to significant negotiation and ultimately dependent on competing business rationales and negotiating leverage. The below outline is a useful tool for understanding the basic mechanics and strategic bankruptcy considerations in negotiating and documenting intercreditor arrangements.
Intercreditor Agreements Under the Bankruptcy Code
“No State shall . . . pass any . . . Law impairing the Obligation of Contracts.”
–Art. I, Sec. 10, U.S. Constitution
Increasingly, states are expanding their laws on debtor/creditor relationships, such as receiverships and assignments for benefit of creditors.
Some of these expansions look suspiciously like a Bankruptcy Code Lite—e.g., adding “stay” provisions.
And that can be a constitutional problem, according to long-standing (and recent) opinions of the U.S. Supreme Court.
What follows is a brief summary of three such opinions.
There’s a new U.S. Circuit Court opinion on a person’s right to a jury trial, when sued by the Securities and Exchange Commission before one of its administrative judges.
And guess what:
On April 28, 2022, Central District of California Bankruptcy Judge Ernest M. Robles issued a decision regarding the eligibility of a debtor to proceed as a Small Business Debtor under Subchapter V of the Bankruptcy Code.
Introduction
A key temporary bankruptcy related response to the pandemic has been re-implemented and extended with the passage of the Bankruptcy Threshold Adjustment and Technical Corrections Act (the “Act”) which extends the increase in the subchapter V debt limit for eligible businesses to $7.5 million for another two years.
On June 7, 2022, Congress passed (in a 392-21 vote) the “Bankruptcy Threshold Adjustment and technical Corrections Act,” which raises the debt limit back to $7.5 million for businesses electing treatment under the Small Business Reorganization Act (“SBRA”), codified under Subchapter V of Chapter 11.
Background
Delaware has seen a significant uptick in the number of assignment for the benefit of creditors (ABC) filings. Through recent decisions, the Court of Chancery has sent a strong message that it expects parties pursuing this bankruptcy alternative to do a better job of justifying the relief they seek. This will require significantly more frequent and robust disclosures to the court and public.
On June 1, 2022, California-based Zosano Pharma Corporation, a clinical-stage biopharmaceutical company enabling the systemic administration of therapeutics and other bioactive molecules to patients using a proprietary transdermal microneedle patch system, filed a petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for District of Delaware (Case No. 22-10506).