In a recent opinion – In re Heritage Home Group LLC, et al., Case No. 18-11736 (KG), 2018 WL 4684802 (Bankr. D. Del. Sept. 27, 2018) – the Delaware Bankruptcy Court addressed the longstanding issue of which professional persons must be retained under section 327(a) of the Bankruptcy Code.

A fundamental tenet of chapter 11 bankruptcies is the absolute priority rule. Initially a judge-created doctrine, the absolute priority rule was partially codified in section 1129(b)(2)(B)(ii) of the Bankruptcy Code. Under section 1129, plans must be “fair and equitable” in order to be confirmed.

Background: Professionals’ Fees in Chapter 11 cases

A Chapter 11 debtor’s reorganization plan purporting to cure a default under a pre-bankruptcy loan agreement must pay “the agreed-upon default rate interest,” consistent with “the underlying agreement” and the “applicable nonbankruptcy law,” held the U.S. Court of Appeals for the Eleventh Circuit on Aug. 31, 2015. In re Sagamore Partners, Ltd., 2015 WL 5091909, at *4 (11th Cir. Aug. 31, 2015).

Is market value sufficient proof of reasonably equivalent value for purposes of the good-faith-for-value defense under Texas law? The U.S. Court of Appeals for the Fifth Circuit certified that question to the Texas Supreme Court on June 30, 2015, after vacating its earlier decision in Janvey v. The Golf Channel, Inc., 2015 WL 3972216, at *3 (5th Cir. June 30, 2015).

Following the Dec. 8 publication by the American Bankruptcy Institute (“ABI”) Commission to Study the Reform of Chapter 11 of a report (the “Report”) recommending changes to Chapter 11 of the Bankruptcy Code (“Code”),[1] we continue to analyze the proposals contained in the ABI’s 400-page Report. One proposal we wanted to immediately highlight would, if adopted, significantly increase the risk profile for secured lenders.