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

Editor’s Note:  One of the many fascinating things about restructuring work is its willingness to evolve by borrowing from other areas of the law.  Just as business practices change, new financing techniques evolve, and transactions become more complex, the bankruptcy world must adapt as well, to allow for a well functioning insolvency system and not a stilted, out of date process.  To that end, we at The Bankruptcy Cave love finding curious decisions in tangential fields of the law, and thinking about how they may change bankruptcy practice, or how bankruptcy pract

There are many tenants that are, shall we say, “problem children.” They pay late, open late, breach, junk up your strip or building, threaten, the works. Sometimes, the landlord finds it easier just to reach a lease termination agreement with such a tenant, with the parties walking away with a mutual release. If the lease is below market, or the landlord is really motivated to move this tenant along, the landlord even provides some “keys money” to terminate the lease.

The absolute priority rule of Section 1129(b) of the Bankruptcy Code is a fundamental creditor protection in a Chapter 11 bankruptcy case. In general terms, the rule provides that if a class of unsecured creditors rejects a debtor’s reorganization plan and is not paid in full, junior creditors and equity interestholders may not receive or retain any property under the plan. The rule thus implements the general state-law principle that creditors are entitled to payment before shareholders, unless creditors agree to a different result.