In its most recent precedential bankruptcy decision, the United States Court of Appeals for the Third Circuit held that a claim for breach of contract – even “contingent” or “unliquidated” – is still a claim which can be discharged in a chapter 11 plan. In re Mallinckrodt PLC, No. 23-1111 (3d Cir. Apr. 25, 2024)

Summary of Purdue Pharma, L.P. v, City of Grand Prairie (In re Purdue Pharma, L.P.), No. 22–110 – Bk (2d Cir. May 30, 2023)

In two cases in as many months, the Supreme Court tackled the application of sovereign immunity in two separate insolvency statutes. Two separate government-like entities suffered conflicting fates while the Court (arguably) employed the same analysis. How so?

Clear Statement Rule

WithinIn re LTL Management, LLC, No. 22-2003 (3d Cir. Jan. 30, 2023), the United States Court of Appeals for the Third Circuit issued its decision on the J&J “Texas –Two Step” bankruptcy saga. The Court’s decision complimented the parties and the lower court for their thorough analysis of the issues, but refocused practitioners on a basic bankruptcy principle:

[A bankruptcy filing] gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

In a unanimous decision Bartenwerfer v Buckley, No. 21-908, 598 U.S. (2023), the U.S. Supreme Court reviewed the breath of the U.S. Bankruptcy Code’s discharge provision – and exceptions thereto – and held that a debt resulting from fraud (even where the debtor was not directly involved) is, nevertheless, nondischargeable. While the Court’s principles provide a roadmap for analyzing potentially nondischargeable claims, it also expands what was originally thought to be a “narrow” exception to discharge.

On October 17, 2022, Justice Andrea Masley of the NY Supreme Court issued a decision and order denying all but one of the motion to dismiss claims filed by Boardriders, Oaktree Capital (an equity holder, term lender, and “Sponsor” under the credit agreement), and an ad hoc group of lenders (the “Participating Lenders”) that participated in an “uptiering” transaction that included new money investments and roll-ups of existing term loan debt into new priming debt that would sit at the top of the company’s capital structure.

On October 14, 2022, the Fifth Circuit issued its decision in Ultra Petroleum, granting favorable outcomes to “unimpaired” creditors that challenged the company’s plan of reorganization and argued for payment (i) of a ~$200 million make-whole and (ii) post-petition interest at the contractual rate, not the Federal Judgment Rate. At issue on appeal was the Chapter 11 plan proposed by the “massively solvent” debtors—Ultra Petroleum Corp. (HoldCo) and its affiliates, including subsidiary Ultra Resources, Inc.

On July 6, Delaware Bankruptcy Court Judge Craig T. Goldblatt issued a memorandum opinion in the bankruptcy cases of TPC Group, Inc., growing the corpus of recent court decisions tackling “uptiering” and other similar transactions that have been dubbed by some practitioners and investors as “creditor-on-creditor violence.” This topic has been a hot button issue for a few years, playing out in a number of high profile scenarios, from J.Crew and Travelport to Serta Simmons and TriMark, among others.

Summary of decisions In re Body Transit, Inc., No. BR 2010014 ELF, 2020 WL 1486784 (Bankr. E.D. Pa. Mar. 24, 2020).

On August 26, 2020, the Court of Appeals for the Third Circuit held that the Bankruptcy Code does not require subordination agreements to be strictly enforced in order for a court to confirm a cramdown plan, so long as the plan does not discriminate unfairly.