Among the many financial innovations that came out of the COVID era, non-pro rata uptier transactions as a liability management exercise (“LMEs”) are among the more controversial. While lawsuits challenging non-pro rata uptier transactions are making their way through the courts, two important decisions were recently issued by the Court of Appeals for the Fifth Circuit and the New York Appellate Division.

On average, the Supreme Court hears a single bankruptcy case each term. But during the October 2022 term, the Supreme Court issued a remarkable four decisions in bankruptcy cases. These decisions, which are summarized below, address appellate issues relating to sale orders, the discharge of claims obtained by fraud, and sovereign immunity issues in two different contexts.

I. Section 363(m) of the Bankruptcy Code is not a jurisdictional provision that precludes appellate review of asset sale orders.

Businesses in a wide range of industries may now be forced to consider bankruptcy given the unprecedented economic challenges caused by the COVID-19 pandemic. This advisory is designed to provide a high-level view of issues to be considered by human resources when considering filing for Chapter 11 bankruptcy. Please note that this advisory focuses specifically on a Chapter 11 bankruptcy (pursuant to which a business will be reorganized) rather than Chapter 7 bankruptcy (pursuant to which a business will be liquidated).

Earlier this month, the Supreme Court announced that it will review the scope of Bankruptcy Code section 546(e)’s safe harbor provision. Section 546(e) protects from avoidance those transfers that are made “by or to (or for the benefit of)” a financial institution, except where there is actual fraud. The safe harbor is intended to ensure the stability of the securities market in the event of corporate restructurings.

In a recent decision (“Energy Future Holdings”) poised to have wide-reaching implications, the Third Circuit Court of Appeals reversed the decisions of the Bankruptcy and the District Courts to hold that a debtor cannot use a voluntary Chapter 11 bankruptcy filing to escape liability for a “make-whole” premium if express contractual language requires such payment when the borrower makes an optional redemption prior to a date certain.

The Pensions Regulator has issued a statement setting out its approach to Financial Support Directions in insolvency situations.  It follows the Court of Appeal's decision in Bloom v The Pensions Regulator (Nortel) in October 2011 that a liability arising from a Financial Support Direction (FSD), or a contribution notice (CN), issued to a company in administration or liquidation will, except in very limited circumstances, amount to an expense of that administration or liquidation.  As such, it will rank very highly in the payment priority order, in particular rank

The story of the restructuring of carpet-maker, Brintons has featured in the press recently, with emphasis on the role of Carlyle, one of the world's biggest private equity firms. The facts are similar to the Silentnight pre-pack which we featured in a previous bulletin. In each case, the Pensions Regulator is said to be considering using its anti-avoidance powers under the Pensions Act 2004 to compel senior debt holders to pay towards the deficit of the defined benefit pension scheme operated by the company.

The Pensions Regulator announced this week that it will not  pursue action to impose a Financial Support Direction against US company, Chemtura Corporation and members of its group after a funding settlement, involving the payment of expedited contributions to the pension scheme of its UK subsidiary, was reached with the scheme's trustees.

The story of the Silentnight restructuring has featured in the press today. There have been calls for the Pensions Regulator to use its anti-avoidance powers under the Pensions Act 2004 to compel HIG Europe to pay more towards the considerable deficit of the Silentnight Pension Scheme, following the purchase of Silentnight out of administration by the private equity firm last Saturday. Earlier this year, Silentnight had failed to obtain the PPF's approval to a Creditors Voluntary Arrangement aimed at addressing its historic debt, including a pensions deficit of around £100m.