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Among the many financial innovations that came out of the COVID era, non-pro rata uptier transactions as a liability management exercise (“LMEs”) are among the more controversial. While lawsuits challenging non-pro rata uptier transactions are making their way through the courts, two important decisions were recently issued by the Court of Appeals for the Fifth Circuit and the New York Appellate Division.

On average, the Supreme Court hears a single bankruptcy case each term. But during the October 2022 term, the Supreme Court issued a remarkable four decisions in bankruptcy cases. These decisions, which are summarized below, address appellate issues relating to sale orders, the discharge of claims obtained by fraud, and sovereign immunity issues in two different contexts.

I. Section 363(m) of the Bankruptcy Code is not a jurisdictional provision that precludes appellate review of asset sale orders.

Businesses in a wide range of industries may now be forced to consider bankruptcy given the unprecedented economic challenges caused by the COVID-19 pandemic. This advisory is designed to provide a high-level view of issues to be considered by human resources when considering filing for Chapter 11 bankruptcy. Please note that this advisory focuses specifically on a Chapter 11 bankruptcy (pursuant to which a business will be reorganized) rather than Chapter 7 bankruptcy (pursuant to which a business will be liquidated).

Earlier this month, the Supreme Court announced that it will review the scope of Bankruptcy Code section 546(e)’s safe harbor provision. Section 546(e) protects from avoidance those transfers that are made “by or to (or for the benefit of)” a financial institution, except where there is actual fraud. The safe harbor is intended to ensure the stability of the securities market in the event of corporate restructurings.

In a recent ruling, the U.S. Court of Appeals for the Eleventh Circuit examined whether circuit courts have jurisdiction to hear direct appeals of unauthorized bankruptcy court orders that have not been reviewed by a district court. This was an issue of first impression in the Eleventh Circuit. The appellate court held that a bankruptcy court’s ruling in a non-core proceeding that has not been reviewed by the district court carries no adjudicative authority and is therefore not directly appealable to the circuit court.

In a recent decision (“Energy Future Holdings”) poised to have wide-reaching implications, the Third Circuit Court of Appeals reversed the decisions of the Bankruptcy and the District Courts to hold that a debtor cannot use a voluntary Chapter 11 bankruptcy filing to escape liability for a “make-whole” premium if express contractual language requires such payment when the borrower makes an optional redemption prior to a date certain.

The Third Circuit Court of Appeals, in an opinion authored by Judge Thomas Ambro, has reversed two district court opinions and refused to allow a company to use a Chapter 11 bankruptcy filing as a means to reduce interest on its debt obligations. Specifically, the court held that filing for bankruptcy would not excuse a debtor from its obligation for a “make-whole” payment otherwise due to its lenders.

On May 4, 2016, the Court of Appeals for the Third Circuit held that a bankruptcy settlement in the form of a tender offer did not violate the principles of the bankruptcy process. See opinion here.

On March 1, 2016, the U.S. Supreme Court heard argument on the seemingly simple question of what “actual fraud” means.  The Court’s decision will have a significant impact on the reach of the exception to discharge under Section 523(a)(2)(A) of the Bankruptcy Code.

A district court judge in the Middle District of Pennsylvania recently vacated a bankruptcy court’s decision allowing rejection of an oil and gas lease under section 365 of the Bankruptcy Code.  The District Court held that a debtor’s oil and gas lease was a conveyance of an interest in real property and not an executory contract or unexpired lease that could be rejected in bankruptcy under Section 365 of the Bankruptcy Code.