On December 19, 2019, the United States Court of Appeals for the Second Circuit (the “Second Circuit”) affirmed a ruling of the United States District Court for the Southern District of New York (the “District Court”) dismissing constructive fraudulent conveyance claims brought by representatives of certain unsecured creditors of Chapter 11 debtor Tribune Company (“Tribune”)
Our private credit clients are preparing for the next restructuring cycle and have called us about ultrafast bankruptcy cases. These chapter 11 cases have grabbed headlines because they lasted less than a day. Specifically, FullBeauty Brands and Sungard Availability Services emerged from bankruptcy in 24 hours and 19 hours, respectively. Is this a trend and which companies are best suited to zip through chapter 11?
A. Prepacks, Pre-Negotiated Cases, and Free-Falls
On August 9, 2019, in a unanimous decision (written by a former bankruptcy judge), the Eighth Circuit Court of Appeals affirmed the confirmation of the Peabody Energy Chapter 11 plan (“Plan”)1 with a prominent backstopped rights offering component.
On June 19, 2019, the United States Court of Appeals for the Third Circuit (the “Third Circuit”) affirmed a ruling of the United States District Court for the District of Delaware (the “District Court”) dismissing challenges by certain first lien creditors of Texas Competitive Electric Holdings LLC (“TCEH”) to the plan distributions and adequate protection payments made during TCEH’s bankruptcy case.
Last year, the Supreme Court issued its decision in Merit, unanimously ruling that a buyout transaction between private parties did not qualify for “safe harbor” protection under Bankruptcy Code section 546(e), on the basis that a “financial institution” acted as an intermediary in the overarching transaction.
On November 30, 2018, Judge Nelson S. Román of the United States District Court for the Southern District of New York issued a decision affirming the dismissal of certain claims brought by senior secured creditors against junior secured creditors concerning the alleged breach of standstill and turnover provisions in an intercreditor agreement that governed the creditors’ relationship as creditors with recourse to common collateral. SeeIn re MPM Silicones, LLC, No. 15-CV-2280 (NSR), 2018 WL 6324842 (S.D.N.Y. Nov. 30, 2018) (“Momentive”).
On November 8, 2018, Judge Vyskocil of the U.S. Bankruptcy Court for the Southern District of New York issued a decision dismissing the involuntary petition that had been filed against Taberna Preferred Funding IV, Ltd. (“Taberna”), a non-recourse CDO, thus ending a nearly seventeen-month-long saga that was followed closely by bankruptcy practitioners and securitization professionals alike. SeeTaberna Preferred Funding IV, Ltd. v. Opportunities II Ltd., et. al., (In re Taberna Preferred Funding IV, Ltd.), No. 17-11628 (MKV), 2018 WL 5880918, at *24 (Bankr.
The securities safe harbor protection of Bankruptcy Code (“Code”) § 546(e) does not protect allegedly fraudulent “transfers in which financial institutions served as mere conduits,” held the U.S. Supreme Court on Feb. 27, 2018. Merit Management Group LP v. FTI Consulting Inc., 2018 WL 1054879, *7 (2018). Affirming the Seventh Circuit’s reinstatement of the bankruptcy trustee’s complaint alleging the insolvent debtor’s overpayment for a stock interest, the Court found the payment not covered by §546(e) and thus recoverable. The district court had dismissed the trustee’s claim.
The Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”) require each corporate party in an adversary proceeding (i.e., a bankruptcy court suit) to file a statement identifying the holders of “10% or more” of the party’s equity interests. Fed. R. Bankr. P. 7007.1(a). Bankruptcy Judge Martin Glenn, relying on another local Bankruptcy Rule (Bankr. S.D.N.Y. R.
The safe harbor protection of Bankruptcy Code (“Code”) §546(e) does not protect “transfers that are simply conducted through financial institutions,” held the U.S. Court of Appeals for the Seventh Circuit on July 28, 2016. FTI Consulting Inc. v. Merit Management Group LP, 2016 WL 4036408, *1 (7th Cir. July 28, 2016).