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

On October 28th, 2013 the Ministry of the Environment (“MOE”) and the former directors and officers of Northstar Aerospace Canada (“Northstar”) reached a $4.75 million settlement for the remediation of a property owned by Northstar in Cambridge, Ontario.

Since Nortel Networks Corporation and a number of related companies (together, “Nortel”), initiated a reorganization under the Companies’ Creditors Arrangement Act (“CCAA”) over two years ago, the Ontario Ministry of the Environment (the “MOE”) has sought to hold Nortel responsible to remediate environmental contamination remaining on properties once or currently owned by Nortel. Nortel has maintained that its responsibility for the environmental contamination should not be prioritized ahead of its other obligations.