In an anticipated decision, on May 30, 2023, the Second Circuit Court of Appeals issued its decision approving a Chapter 11 plan’s inclusion of a nonconsensual release of direct claims against non-debtor third parties. Purdue Pharma LP v. City of Grand Prairie (In re Purdue Pharma LP), No. 22-110 (2d Cir. May 30, 2023).
The ruling, which held that the transaction did not violate the implied covenant of good faith and fair dealing, highlights the importance of carefully drafting lending documents.
On June 6, 2023, Judge David Jones of the United States Bankruptcy Court for the Southern District of Texas (the Bankruptcy Court) held that the 2020 Serta Simmons "uptier" transaction (the Transaction) was permitted under Serta's existing 2016 credit agreement (the Credit Agreement), a decision that could have broad implications for the permissibility of such transactions.1
The U.S. Bankruptcy Appellate Panel for the Eighth Circuit recently held that, at a minimum, a substantial change in circumstances is required to justify modification of a bankruptcy plan under Section 1229.
The Eighth Circuit BAP also determined that the bankruptcy court’s ruling that the debtors met their burden of showing an unanticipated, substantial change in circumstances was not clearly erroneous, despite multiple changes by the debtor, nor was the bankruptcy court’s finding that the fourth modified plan was feasible and confirmable.
Is an insolvent debtor’s pre-bankruptcy termination of a commercial lease a fraudulent transfer? The Third Circuit said no when it held that a lessor’s pre-bankruptcy termination of the debtors’ lease and purchase option “was not a transfer under Bankruptcy Code §548(a) (1)(B).” In re Pazzo Pazzo Inc., 2022 WL 17690158 (3d Cir. Dec. 15, 2022). But the Seventh Circuit held that a chapter 11 debtor’s pre-bankruptcy “surrender of [two] … leases to [its landlord] could be regarded as a preferential [or fraudulent] transfer.” In re Great Lakes Quick Lube L.P., 816 F.3d 482 (7th Cir. 2016).
On May 30, 2023, the United States Court of Appeals for the Second Circuit (the “Second Circuit” or the “Court”) rendered a much anticipated opinion (the “Opinion”),1 reversing the order of the United States District Court for the Southern District of New York (the “District Court”) that the Bankruptcy Code does not permit non-consensual third-party releases of direct claims and affirming the order of the United States Bankruptcy Court for the Southern District of New York (the
Section 503(b)(9) Overview
Over recent years, a prolonged period of low interest rates, together with a competitive financing market, has resulted in greater leverage and control for private companies (and their sponsors) when it comes to negotiating terms with current and potential creditors. There has also been, as a consequence of this dynamic and the general availability of capital, an expansion in debt document flexibility over the course of the last decade.
Close economic ties and interdependence between the US and Canada have been bolstered by free trade policies and intensified global competition, paving the way for continued opportunities for US businesses to tap into the Canadian market. These opportunities have resulted in an active cross-border lending market. In light of this, US lenders who are lending into Canada may encounter, and should be aware of, Canadian-specific legal issues and considerations.
“How did you go bankrupt?
“Two ways. Gradually, then suddenly.”
- Ernest Hemingway, The Sun Also Rises
Whether from internal or external factors, every company at some point will experience financial stress. The key to avoiding the extreme zone of financial distress—insolvency and “suddenly” bankruptcy—is to be proactive early on—when financial challenges are progressing “gradually.”