On October 14, 2022, the U.S. Court of Appeals for the Fifth Circuit issued a long-awaited ruling on whether Ultra Petroleum Corp.

In Short

The Situation: Courts have disagreed over whether a make-whole premium triggered by a borrower's bankruptcy filing must be disallowed as unmatured interest. They have also disputed whether the "solvent-debtor exception" requiring the payment of postpetition interest to unimpaired unsecured creditors of a solvent debtor survived the enactment of the Bankruptcy Code. Finally, courts have split on what rate of postpetition interest unimpaired unsecured creditors of a solvent debtor are entitled to receive.

In Short

The Situation: Bankruptcy courts have split on what rate of post-petition interest unimpaired creditors of a solvent debtor are entitled to receive. Bankruptcy courts have variously ruled that such creditors were entitled to the contractual rate of interest, interest at the federal judgment rate (about the rate on a one-year Treasury bill) as of the bankruptcy petition date, or an equitable rate. Another possibility is that no interest is payable at all.

Equitable subordination in bankruptcy can be a powerful tool, providing a court with considerable latitude to set things right insofar as the estates of the penniless and the rights of their creditors are concerned.

By no means do we think that we might reliably predict the outcome of such a politically charged case as King v. Burwell, No. 14-114, the latest challenge to the Affordable Care Act.

Most bankruptcy lawyers might think that the dismissal of a bankruptcy proceeding and the revesting of the bankruptcy estate’s assets in the debtor bring an end to the bankruptcy court’s jurisdiction.

Vigilantibus non dormientibus, æquitas subvenit.

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