In a previous alert, we covered the Delaware Chancery Court’s decision in Stream TV Networks last year.

On July 5, 2022, cryptocurrency brokerage Voyager Digital filed for chapter 11 in the Southern District of New York Bankruptcy Court, citing a short-term “run on the bank” due to the “crypto winter” in the cryptocurrency industry generally and the default of a significant loan made to a third party as the reasons for its filing. At Voyager’s first day hearing on July 8, 2022, the Bankruptcy Court asked the critical question of whether the crypto assets on Voyager’s platform were property of the estate or its customers.

The Bankruptcy Court for the District of New Jersey denied motions to dismiss the chapter 11 case of the newly created subsidiary of Johnson & Johnson, LTL Management LLC, and granted the debtor’s motion to stay prosecution of actions asserting talc related personal injuries against its J&J affiliates and the products distributors. This is the first opinion outside the North Carolina bankruptcy court approving the use of the so-called Texas Two Step as a bankruptcy execution strategy.

The Motions to Dismiss

This past year was marked by extraordinary deal activity. Record breaking M&A activity drove record breaking private credit activity. Private equity M&A activity was at a substantial high, with over 8,500 deals worth $2.1 trillion, a 60% increase over 2020. Not surprisingly, in this environment, defaults were at all-time lows. The Proskauer Private Credit Default tracker showed an active default rate of approximately 1% at the end of 2021, compared to 3.6% in 2020.

Key Takeaways

Highlights

Should a claim for appraisal rights brought by a former shareholder of a Chapter 11 debtor be subordinated under Section 510(b) of the Bankruptcy Code? According to the Bankruptcy Court for the District of Delaware, the answer is yes. See In re: RTI Holding Co., LLC, No. 20-12456, 2021 WL 3409802 (Bankr. D. Del. Aug. 4, 2021).

Background

Trillions of dollars of securities are issued on the strength of bankruptcy remoteness and special purpose entities (“SPVs”) intended to be bankruptcy remote. These transactions generally involve hundreds of millions of dollars and investors’ expectations that the SPVs will not be dragged into a potential bankruptcy filing of their non-SPV affiliates.

In a recent opinion, the Bankruptcy Court for the District of Maryland dealt with a conflict between the strong presumption in favor of enforcing arbitration agreements and the Bankruptcy Code’s emphasis on centralization of claims. Based on an analysis of the two statutory schemes and their underlying policies and concerns, the Court decided to lift the automatic stay to allow the prepetition arbitration proceeding to go forward with respect to non-core claims.

Background

The application of sovereign immunity principles in bankruptcy cases has vexed the courts for decades. The U.S. Supreme Court’s opinions on the matter have not helped much. Although they have addressed the issue in specific contexts, they have not established clear guidelines that the lower courts may apply more generally. The Third Circuit took a crack at clarifying this muddy but important area of the law in the case of Venoco LLC (with its affiliated debtors, the “Debtors”).

Background