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The Aftermath of a Complicated Breakup: Third Circuit Holds Stalking Horse Bidder in Terminated Transaction May Assert Potential Administrative Expense Claim Notwithstanding Disallowance of Its Termination Fee

Executive Summary

On March 15, 2021, the Third Circuit Court of Appeals (the “Third Circuit”) held that a stalking horse bidder may assert an administrative expense claim pursuant to section 503(b)(1)(A) of the Bankruptcy Code for costs incurred in attempting to close on an unsuccessful transaction, even when the stalking horse bidder is not entitled to a breakup or termination fee.

USA, Insolvency & Restructuring, Litigation, Weil Gotshal & Manges LLP, Due diligence
Officers of Selling Companies May Escape Fiduciary Duty Liability But May Be Required to Return Change of Control Payments if Company is Insolvent Post-Closing (Nine West Part 2)

While there has been much fuss over the recent ruling by the United States District Court for the Southern District of New York in In re Nine West LBO Securities Litigation1 due to its potential ramifications for director liability, as we explored in Part I of our series on this case here, court watchers have paid less attention to the court’s treatment of officer liability and the interes

USA, Insolvency & Restructuring, Litigation, Weil Gotshal & Manges LLP, Private equity, Due diligence
Attention Buyers of Assets in Bankruptcy: How To Be A Good Faith Purchaser and Ensure Any Post-Closing Challenges Will Be Dismissed as Statutorily Moot Under Section 363(m) of the Bankruptcy Code

Introduction

USA, Insolvency & Restructuring, Litigation, Weil Gotshal & Manges LLP
Warning to Directors of Selling Companies: Breach of Fiduciary Duty Liability May Exist for Failure to Investigate and Ensure Solvency of Company Post-Closing and Propriety and Effect of All Related Transactions (But You Can Protect Yourself)

A recent ruling from the United States District Court for the Southern District of New York sent shock waves through the legal and financial community, with some shouting that this “could be a gamestopper for the private equity business.”1 Although the ruling in In re Nine West LBO Securities Litigation2 breaks new ground and arguably narrows the protections available to directors under the normally-broad business judgment rule, there are clear lessons others can take from this saga to prevent a similar fate.

USA, Company & Commercial, Insolvency & Restructuring, Litigation, Weil Gotshal & Manges LLP, Private equity, Due diligence
Yeah, We Can Take It - Texas Bankruptcy Court Defines the Scope of Its Post-Confirmation Jurisdiction

Executive Summary

A recent decision from the United States Bankruptcy Court for the Northern District of Texas, In re Care Ctrs., LLC, No. 18-33967, 2020 Bankr. LEXIS 3205 (Bankr. N.D. Tex. Nov. 12, 2020), examined (1) the scope of bankruptcy court subject-matter jurisdiction for post-confirmation actions filed in state court and removed to bankruptcy court; and (2) when the court must or should abstain and remand a proceeding back to the court where the action was originally brought.

USA, Texas, Insolvency & Restructuring, Litigation, Weil Gotshal & Manges LLP
Eastern District of Virginia Bankruptcy Court Finds Landlord’s Lender Has No Right to Enforce Landlord’s Lease with Bankrupt Retailer

OVERVIEW

USA, Insolvency & Restructuring, Litigation, Real Estate, Weil Gotshal & Manges LLP, Coronavirus
Third Circuit Decision Provides New Guidance on the Unfair Discrimination Standard of Cramdown and the Enforcement of Subordination Agreements When Confirming Cramdown Plans

In an important decision issued at the end of August, the United States Court of Appeals for the Third Circuit, in In re Tribune Co., Case No. 18-2909 (3d Cir. Aug. 26, 2020), held that subordination agreements need not be strictly enforced when confirming a chapter 11 plan pursuant to the Bankruptcy Code’s cramdown provision in section 1129(b)(1). In its decision, the Third Circuit also encouraged bankruptcy courts to apply “a more flexible unfair-discrimination standard” and set forth eight guiding principles to aid in that effort.

USA, Insolvency & Restructuring, Litigation, Weil Gotshal & Manges LLP, Title 11 of the US Code
NY Court Blocks Mezzanine Lender’s UCC Foreclosure Sale in Light of COVID-19 Pandemic

On June 23, the New York County Supreme Court issued a rare preliminary injunction temporarily halting a mezzanine lender’s UCC foreclosure sale of the Mark Hotel in New York City because the procedures for the foreclosure sale were not commercially reasonable in light of conditions caused by the COVID-19 pandemic (D2 Mark LLC v. Orei VI Investments LLC, 2020 WL 3432950 (2020)).

USA, Corporate Finance/M&A, Insolvency & Restructuring, Litigation, Troutman Pepper, Due diligence, Non-disclosure agreement, Coronavirus, New York Supreme Court
Lender Beware: Two Recent Bankruptcy Cases Highlight Importance of Diligence in UCC-1 Filings

Lenders should view as cautionary tales two recently handed down decisions regarding UCC-1 financing statements and the perfection of security interests. On December 20, 2019, the U.S. Bankruptcy Court for the District of Kansas in In re Preston held that security interests in personal property were unperfected because the UCC-1 incorrectly set forth the debtor’s name. On January 2, 2020, the U.S.

USA, North Carolina, Company & Commercial, Insolvency & Restructuring, Litigation, Troutman Pepper, United States bankruptcy court
Fraudulent Transfer Claims Avoid State Sovereign Immunity, But Only If a Property Interest Exists Under State Law

In a recent decision, In re Philadelphia Entertainment and Development Partners, L.P., No. 14-000255-mdc (Bankr. E.D. Pa. Dec. 31, 2019), the Bankruptcy Court for the Eastern District of Pennsylvania held that state sovereign immunity does not prevent bankruptcy courts from hearing fraudulent transfer claims against states.

USA, Pennsylvania, Insolvency & Restructuring, Litigation, Weil Gotshal & Manges LLP, Debtor