A bedrock principle underlying chapter 11 of the Bankruptcy Code is that creditors, shareholders, and other stakeholders should be provided with adequate information to make an informed decision to either accept or reject a chapter 11 plan. For this reason, the Bankruptcy Code provides that any "solicitation" of votes for or against a plan must be preceded or accompanied by stakeholders' receipt of a "disclosure statement" approved by the bankruptcy court explaining the background of the case as well as the key provisions of the chapter 11 plan.
In Short
The Situation: The U.S. Supreme Court considered whether § 363(m) of the Bankruptcy Code, which limits a party's ability to undo an asset transfer made to a good-faith purchaser in a bankruptcy case, is jurisdictional.
The ability of a bankruptcy trustee or chapter 11 debtor-in-possession ("DIP") to assume, assume and assign, or reject executory contracts and unexpired leases is an important tool designed to promote a "fresh start" for debtors and to maximize the value of the bankruptcy estate for the benefit of all stakeholders. However, the Bankruptcy Code establishes strict requirements for the assumption or assignment of contracts and leases.
On Monday, January 30, 2023, the Third Circuit in In re LTL Management, LLC1 ordered debtor LTL Management, LLC’s (“LTL”) chapter 11 petition dismissed for failure to demonstrate that the petition was filed in good faith pursuant to the Bankruptcy Code.2 The dismissal of LTL’s bankruptcy will also result in the termination of an injunction staying numerous lawsuits against third-parties—including lawsuits against certain third-party retailers being sued for allegedly having sold certain allegedly contaminated products.
Over the last two years, courtesy of a once-a-century pandemic, government-mandated business closures, nationwide stay-at-home orders, and—unprecedented—disruptions to the global supply chain have illuminated, previously unknown, vulnerabilities across a whole host of industries. Would anyone have seriously questioned the viability of office space two years ago? Now, inflation, in keeping with the recent chaos, may be upending the viability of another tried-and-tested institution: the supply contract.
In a decision that may encourage continued sales from suppliers to distressed entities, the Eleventh Circuit in Auriga Polymers Inc. v. PMCM2, LLC1 joined the Third Circuit,2 the only other circuit to directly address the issue, in concluding that post-petition payments for the value of goods received by a debtor within 20 days before the petition date, authorized by 11 U.S.C. section 503(b)(9), do not reduce a creditor's "subsequent new value" preference defense.
I. Preferences in a Nutshell
1. State of the Restructuring Market
1.1 Market Trends and Changes
State of the Restructuring and Insolvency Market
There were 27,359 insolvencies in France as of the end of September 2021, down 25.1% from the same period in 2020, and down 47.9% from September 2019. Such reduction is relatively stable across all sectors, including those most severely affected by the health-related restrictions, such as accommodation and food services (down 44.2% year-on-year) and trade (down 28.1% year on year).
Fewer Insolvencies for More Opportunities
At the end of 2021, corporate bankruptcies (for most company sizes and in most sectors) were at their lowest level compared to the pre-COVID-19 figures from 2019, with a 50% drop in insolvency proceedings and a 10% decrease in pre-insolvency situations. This was largely due to the temporary impact of government emergency measures and support, including: