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Solvent Debtors: Make-Whole Premiums and Post-Petition Interest

On October 14, 2022, the U.S. Court of Appeals for the Fifth Circuit affirmed the decision of the U.S. Bankruptcy Court for the Southern District of Texas (Isgur, J.) allowing a claim against a solvent debtor for a make-whole premium and post-default interest totaling approximately $387 million. Ultra Petroleum Corp., et al. v.

USA, Insolvency & Restructuring, Litigation, Reed Smith LLP, United States bankruptcy court, Fifth Circuit, U.S. Court of Appeals
Seventh Circuit Court of Appeals reverses District Court, follows trend of applying Bankruptcy Code safe harbors literally and expansively

INTRODUCTION

USA, Capital Markets, Insolvency & Restructuring, Litigation, Reed Smith LLP, Debtor, Security (finance), Safe harbor (law), Title 11 of the US Code, Seventh Circuit
MtGox seeks protection under chapter 15 of the Bankruptcy Code

In late February 2014, MtGox Co., Ltd (“MtGox”), once the largest bitcoin exchange in the world, suspended all trading on its exchange after internal investigations revealed a loss of approximately 750,000 of its customers’ bitcoins worth nearly $473 million. That loss caused MtGox to become insolvent.

Japan, USA, Insolvency & Restructuring, Litigation, Reed Smith LLP, Debtor, Title 11 of the US Code
No surcharge for you: Third Circuit rules that section 506(c) surcharge is "sharply limited"

The ability to "surcharge" a secured creditor's collateral in bankruptcy is an important resource available to a bankruptcy trustee or chapter 11 debtor in possession ("DIP"), particularly in cases where there is little or no equity in the estate to pay administrative costs, such as the fees and expenses of estate-retained professionals. However, as demonstrated by a ruling handed down by the Third Circuit Court of Appeals, the circumstances under which collateral may be surcharged are narrow. In In re Towne, Inc., 2013 BL 232068 (3d Cir. Aug.

USA, Insolvency & Restructuring, Litigation, Jones Day, Bankruptcy, Collateral (finance), Foreclosure, Secured creditor, Third Circuit
Second Circuit interprets securities contract safe harbor broadly for second time in three years

CASE SNAPSHOT

USA, Insolvency & Restructuring, Litigation, Reed Smith LLP, Security (finance), Safe harbor (law), Second Circuit
Fourth Circuit concludes that certain commissions and margin interest payments are protected from avoidance by "stockbroker defense"

CASE SNAPSHOT

In a case of first impression, the Fourth Circuit determined that broker commissions shown to be reasonable and customary parts of settling stock sales constitute "settlement payments" and that the payment of margin interest constitutes "margin payments" under section 546(e) of the Bankruptcy Code such that these types of payments are immune from avoidance and recovery by a bankruptcy trustee.

FACTUAL AND PROCEDURAL BACKGROUND

USA, Capital Markets, Insolvency & Restructuring, Litigation, Reed Smith LLP, Debtor, Interest, Margin (finance), Commission (remuneration), Fourth Circuit
Bankruptcy Court concludes that renewable power purchase and sale agreement is a "forward contract" entitled to safe harbor protections

CASE SNAPSHOT

USA, Insolvency & Restructuring, Reed Smith LLP, Bankruptcy, Debtor, Renewable energy, Title 11 of the US Code, United States bankruptcy court
Distributions from an investment advisor to its customers may not be protected transactions under Section 546(e) of the Bankruptcy Code

CASE SNAPSHOT

USA, Insolvency & Restructuring, Litigation, Reed Smith LLP, Debtor, Security (finance), Safe harbor (law), Commodity, Liquidation, Title 11 of the US Code, United States bankruptcy court
Mechanics for accelerating repo transactions due to an event of default under the GMRA

Under the 2000 version of the Global Master Repurchase Agreement (the "GMRA"), a standard form agreement produced by The Bond Market Association and the International Securities Market Association, an Event of Default occurs, and all outstanding transactions under the GMRA are accelerated immediately, upon:

Global, Insolvency & Restructuring, Reed Smith LLP, Security (finance), Liquidation, Liquidator (law)
Appointment of administrators under U.K.'s is not an event of default under Global Master Repurchase Agreement

Under the Global Master Repurchase Agreement (the "GMRA"), a standard form agreement produced by The Bond Market Association and the International Securities Market Association, all of the events of default (with one exception) require both (i) the occurrence of an event and (ii) service by the non-defaulting party of a default notice on the defaulting party.

United Kingdom, Insolvency & Restructuring, Litigation, Reed Smith LLP, Liquidation, Default (finance), Liquidator (law)