Even before Congress added section 365(c)(3) to the Bankruptcy Code in 1984, it was generally understood that a nonresidential real property lease which has been validly terminated under applicable law prior to a bankruptcy filing by the debtor-former tenant cannot be assumed or assigned in bankruptcy. Moreover, the terminated leasehold interest is excluded from the debtor’s bankruptcy estate, and any action by the landlord to obtain possession of the formerly leased premises is not prohibited by the automatic stay.

In In re Energy Future Holdings Corp., 540 B.R. 109 (Bankr. D. Del. 2015), the bankruptcy court ruled that, although a chapter 11 plan proposed by solvent debtors need not provide for the payment of postpetition interest on unsecured claims to render the claims unimpaired, the plan must provide that the court has the discretion to award such interest at an appropriate rate “under equitable principles.” The ruling highlights the important distinction between the allowance of a claim in bankruptcy and the permissible treatment of the claim under a chapter 11 plan.

Fees on Fees

On June 15, 2015, the U.S. Supreme Court handed down its ruling in Baker Botts LLP et al. v. ASARCO LLC, No. 14-103, 2015 BL 187887 (June 15, 2015), in which it considered whether a bankruptcy court has the power to award fees to a law firm for defending its fee application for services performed on behalf of a chapter 11 debtor.

One year ago, we wrote that, unlike in 2019, when the large business bankruptcy landscape was generally shaped by economic, market, and leverage factors, the COVID-19 pandemic dominated the narrative in 2020. The pandemic may not have been responsible for every reversal of corporate fortune in 2020, but it weighed heavily on the scale, particularly for companies in the energy, retail, restaurant, entertainment, health care, travel, and hospitality industries.

Madoff

Postpetition financing provided by pre-bankruptcy shareholders or other "insiders" is not uncommon in chapter 11 cases as a way to fund a plan of reorganization and allow old shareholders to retain an ownership interest in the reorganized entity. The practice is typically sanctioned by bankruptcy courts under an exception—the "new value" exception—to the "absolute priority rule," which prohibits shareholders and junior creditors from receiving any distribution under a plan on account of their interests or claims unless senior creditors are paid in full or agree otherwise.

In Short

In the July/August 2019 issue of the Business Restructuring Review, we discussed a landmark decision by the U.S. Court of Appeals for the Fifth Circuit in In re Ultra Petroleum Corp., 913 F.3d 533(5th Cir. 2019) ("Ultra I").

In Trinity 83 Dev., LLC v. ColFin Midwest Funding, LLC, 917 F.3d 599 (7th Cir. 2019), the U.S. Court of Appeals for the Seventh Circuit held that section 363(m) of the Bankruptcy Code does not moot an appeal involving a dispute over the proceeds of a sale of assets in bankruptcy. In concluding that section 363(m) does not moot such an appeal, but merely provides the purchaser with a defense in litigation challenging the sale, the Seventh Circuit overruled its prior decision on the scope of section 363(m) in In re River West Plaza-Chicago, LLC, 664 F.3d 668 (7th Cir.

The Situation On January 17, 2019, the Fifth Circuit strongly suggested that claims for make-whole damages be characterized as "unmatured interest" and that claims for postpetition interest on unsecured debt be limited in bankruptcy proceedings.

The Result The court's decision appears to be one that favors debtors over lenders.

Looking Ahead It is unclear if the court's reasoning will be adopted by other jurisdictions and/or in cases with differing factual and legal grounds.