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Fifth Circuit Rules on the "Solvent-Debtor Exception" and Make-Whole Premiums

On October 14, 2022, the U.S. Court of Appeals for the Fifth Circuit issued a long-awaited ruling on whether Ultra Petroleum Corp.

USA, Company & Commercial, Insolvency & Restructuring, Litigation, Jones Day, US Congress, United States bankruptcy court, Fifth Circuit, U.S. Court of Appeals
Fifth Circuit Rules on the "Solvent-Debtor Exception" and Make-Whole Premiums

In Short

The Situation: Courts have disagreed over whether a make-whole premium triggered by a borrower's bankruptcy filing must be disallowed as unmatured interest. They have also disputed whether the "solvent-debtor exception" requiring the payment of postpetition interest to unimpaired unsecured creditors of a solvent debtor survived the enactment of the Bankruptcy Code. Finally, courts have split on what rate of postpetition interest unimpaired unsecured creditors of a solvent debtor are entitled to receive.

USA, Insolvency & Restructuring, Litigation, Jones Day, US Congress, Fifth Circuit
Divided Ninth Circuit Rules That Unimpaired Unsecured Creditors of a Solvent Debtor May Be Entitled to Post-Petition Interest at Contract or State Default Rates

In Short

The Situation: Bankruptcy courts have split on what rate of post-petition interest unimpaired creditors of a solvent debtor are entitled to receive. Bankruptcy courts have variously ruled that such creditors were entitled to the contractual rate of interest, interest at the federal judgment rate (about the rate on a one-year Treasury bill) as of the bankruptcy petition date, or an equitable rate. Another possibility is that no interest is payable at all.

USA, Insolvency & Restructuring, Litigation, Jones Day, Supreme Court of the United States, Ninth Circuit
Court of Appeal holds that anti-deprivation principle does not apply to provisions relating to the termination of an IP licence on insolvency

The anti-deprivation principle provides that “there cannot be a valid contract that a man’s property shall remain his until his bankruptcy, and, on the happening of that event, go over to someone else, and be taken away from his creditors”.

United Kingdom, Insolvency & Restructuring, Intellectual Property, Litigation, Herbert Smith Freehills LLP, Share (finance), Bankruptcy, Breach of contract, Interest, Joint venture, Court of Appeal of England & Wales
Court of Appeal reverses earlier decision and holds that anti-deprivation principle does not apply to provisions relating to the termination of an IP licence on insolvency

In September 2009 we reported on the first instance decision in Butters and ors v BBC Worldwide Ltd and ors, accessible here in which the Court held that contractual provisions in a joint venture agreement taken together with termination provisions in a licence of IP rights were void since the effect of those provisions on insolvency was to deprive creditors' access to assets and therefore contrary

United Kingdom, Insolvency & Restructuring, Intellectual Property, Litigation, Media & Entertainment, Herbert Smith Freehills LLP, Share (finance), Joint venture, Subsidiary, Court of Appeal of England & Wales
IP licences and insolvency - deprivation principle held to apply to provisions relating to the termination of an IP licence on insolvency

In Butters and ors v BBC Worldwide Ltd and ors, decided on 20 August 2009, the Court held that contractual provisions in a joint venture agreement taken together with termination provisions in a licence of IP rights were void since the effect of those provisions on insolvency was to deprive creditors access to assets and therefore contrary to public policy in the light of insolvency laws.

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United Kingdom, Insolvency & Restructuring, Intellectual Property, Litigation, Herbert Smith Freehills LLP, Share (finance), Bankruptcy, Joint venture, Public limited company, Prejudice, Subsidiary