A series of decisions over the past year — on issues such as make-whole premiums, intercreditor agreements, backstops for rights offerings and nonconsensual third-party releases — will likely have a significant impact in 2020 on parties involved in bankruptcy proceedings.

Fifth Circuit Reverses Course on the Enforceability of Make-Whole Premiums in Chapter 11

In U.S. Bank N.A. v. Village at Lakeridge, LLC, the U.S. Supreme Court issued an important decision on standards of appellate review, holding that appellate courts should review a bankruptcy court’s determination of whether a particular creditor is a “nonstatutory insider” for purposes of the Bankruptcy Code under the highly deferential “clearly erroneous” standard of review.

Despite lower-than-average Chapter 11 activity in 2014, the legal landscape for distressed investors has continued to evolve, with significant legal developments in credit bidding, make-whole premiums and intercreditor agreements. By staying apprised of the evolving jurisprudence in these areas, distressed investors can mitigate risks that have foiled lenders in recent cases.

Credit Bidding

Corporate Chapter 11 filings remained relatively low in 2014, down slightly from 2013, due to a robust capital market environment, low interest rates and easy access to financing. These and other factors allowed highly leveraged borrowers that might otherwise have been Chapter 11 restructuring candidates to refinance or pursue other nonjudicial restructuring alternatives. Among those companies that filed corporate bankruptcies, the District of Delaware and the Southern District of New York continued to capture the lion's share of cases.