Happy 2022, everyone! It seems fitting to kick off our Make (Whole) a Minute Update series in 2022 with an alert on make-whole. On December 22, 2021, the Bankruptcy Court for the District of Delaware ruled in favor of the Debtor-Hertz on a Motion to Dismiss filed by Debtor-Hertz with respect to make-whole claims and post-petition interest claims filed by public bondholders, with respect to four different series of bonds. In keeping with our theme that it takes about a minute to read our updates, here are the takeaways on the Hertz decision for institutional investors:

Sounds like an odd combination—enforceability of make-whole and post-petition interest and patent law. It is. But relevant nonetheless. Recall that a key argument in the ongoing Ultra Petroleum dispute regarding the noteholders’ entitlement to make-whole and post-petition interest is the existence of the Solvent Debtor Rule. The Solvent Debtor Rule is a judicially created exception to the prohibition on claims for post-petition interest by unsecured creditors in bankruptcy.

Welcome to the first Akin Gump client alert sub-titled Make (Whole) a Minute. These alerts are designed to be short digestible updates or commentaries on topics of interest to the institutional investment community that take a minute (or two) to read. And who doesn’t love Make-Whole and a good play on words?

In Shameeka Ien v. TransCare Corp., et al. (In re TransCareCorp.), Case No. 16-10407, Adv. P. No. 16-01033 (Bankr. S.D.N.Y. May 7, 2020) [D.I. 157], the Bankruptcy Court for the Southern District of New York recently refused to dismiss WARN Act claims against Patriarch Partners, LLC, private equity firm (“PE Firm“), and its owner, Lynn Tilton (“PE Owner“), resulting from the staggered chapter 7 bankruptcies of several portfolio companies, TransCare Corporation and its affiliates (collectively, the “Debtors“).

Joining three other bankruptcy courts, Judge Thuma of the District of New Mexico recently held that the rules issued by the Small Business Administration (“SBA“) that restrict bankrupt entities from participating in the Paycheck Protection Program (“PPP“) violated the Coronavirus Aid, Relief, and Economic Security Act, H.R. 748, P.L. 115-136 (the “CARES Act”), as well as section 525(a) of the Bankruptcy Code.

The Southern District of New York recently reminded us in In re Firestar Diamond, Inc., et al., Case No. 18-10509 (Bankr. S.D.N.Y. April 22, 2019) (SHL) [Dkt. No. 1482] that equitable principles in bankruptcy often do not match those outside of bankruptcy. Indeed, bankruptcy decisions often place emphasis on equality of treatment amongst all creditors and are less concerned with inequities to individual creditors.

Introduction

In Wells Fargo Bank, N.A., f/b/o Jerome Guyant, IRA v. Highland Construction Management Services, L.P. et al., Nos. 18-2450-52 (4th Cir. March 17, 2020), the Fourth Circuit Court of Appeals recently upheld that a borrower’s indirect economic interests in a limited liability company (LLC) were not assigned to a lender under a conveyance in a security agreement assigning mere membership interests, pursuant to Virginia state law.

Facts

Setoff is a right that allows a creditor to offset a prepetition debt owed to a debtor with its prepetition claim against the debtor.  See In re Luongo, 259 F.3d 323, 334 (5th Cir.

Setoff is a right that allows a creditor to offset a prepetition debt owed to a debtor with its prepetition claim against the debtor. See In re Luongo, 259 F.3d 323, 334 (5th Cir. 2001). This remedy is aimed at preventing the inequitable and inefficient result that occurs when a creditor is forced to pay a 100% of its prepetition debt owed to a debtor, without resolving its prepetition claim. In such circumstances, the creditor is often forced to later prosecute its unresolved claim against the debtor and is commonly only awarded a fraction of the value of its claim.