Building on emerging trends, 2024 has seen a continued rise in the use of equity-linked debtor-in-possession (DIP) financing in Chapter 11 cases.
Recent examples from WeWork and Enviva illustrate how stakeholders are leveraging this innovative tool to drive broader reorganization strategies and outcomes rather than as a mechanism solely providing interim financing to fund a debtor’s operations during the pendency of its bankruptcy case.
WeWork
Building on emerging trends, 2024 has seen a continued rise in the use of equity-linked debtor-in-possession (DIP) financing in Chapter 11 cases.
Recent examples from WeWork and Enviva illustrate how stakeholders are leveraging this innovative tool to drive broader reorganization strategies and outcomes rather than as a mechanism solely providing interim financing to fund a debtor’s operations during the pendency of its bankruptcy case.
WeWork
On May 31, 2024, the chief judge of the U.S. Bankruptcy Court for the Southern District of New York (SDNY) entered General Order M-634, adopting guidelines for combining the processes for Chapter 11 plan confirmation under Section 1129 of the Bankruptcy Code and disclosure statement approval under Section 1125 of the Bankruptcy Code.
On January 22, 2024, the chief judge of the U.S. Bankruptcy Court for the Southern District of New York entered General Order M-621 adopting amended procedural guidelines governing prepackaged Chapter 11 cases.
The guidelines provide a comprehensive framework for the administration of prepackaged Chapter 11 cases in the district. Among other things, they recognize and address “Rapid Prepackaged Chapter 11 Case[s],” defined as cases “where the Debtor seeks confirmation of the plan to be granted between one (1) and fourteen (14) days after the petition date.”
Key Points
In a welcome clarification for administrators, the UK Supreme Court in the recent case of R (on the application of Palmer) v Northern Derbyshire Magistrates’ Court[1], held that an administrator appointed under the Insolvency Act 1986 (IA 1986) is not an “officer” of the company for the purposes of section 194(3) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).
In this client alert, we set out the key findings by the Court of Appeal in Darty Holdings SAS v Geoffrey Carton-Kelly [2023] EWCA Civ 1135, which considers an appeal against the High Court decision that a repayment by Comet Group plc (“Comet”) of £115 million of unsecured intra-group debt to Kesa International Ltd (“KIL”) was a preference under section 239 of the Insolvency Act 1986 (the “Act”).
Background to the Case
Whilst commonplace in the U.S., uptier transactions in which a borrower teams up with a subset of creditors to issue new “super priority” debt by amending or exchanging existing debt documents, have not been widely used in Europe.
However, with increasing macro economic pressures and financial market instability, we may see more European borrowers taking advantage of flexibility in cov-lite debt documentation to implement liability management transactions as an alternative to, or even as part of, more formal restructurings.
The Eighth Circuit held that “avoidance actions [e.g., preferences, fraudulent transfers] can be sold as property of the [Chapter 7 debtor’s] estate.” In re Simply Essentials, LLC, 2023 WL 5341506, *1 (8th Cir. Aug. 21, 2023). On a direct appeal from the bankruptcy court, the court affirmed the bankruptcy court’s granting of the trustee’s motions to compromise and sell property under Bankruptcy Code §363(f). A creditor had objected, arguing unsuccessfully that “avoidance actions… are not part of the bankruptcy estate ….” Id.
On July 28, 2023, Judge Michael Kaplan of the Bankruptcy Court for the District of New Jersey issued an opinion granting motions to dismiss LTL Management LLC’s second chapter 11 case, finding that it was filed in bad faith due to a lack of imminent and immediate financial distress. See In re LTL Mgmt., LLC, No. 23-12825 (MBK), 2023 WL 4851759 (Bankr. D.N.J. July 28, 2023). Judge Kaplan’s decision follows the U.S. Court of Appeals for the Third Circuit’s dismissal of LTL’s first chapter 11 bankruptcy case in January 2023.