On April 17, 2023, the Fifth Circuit issued an opinion holding that a senior lender who uses economic leverage and exercises its statutory and contractual rights upon a borrower’s default, including the right to credit bid as part of a bankruptcy sale process—despite adverse impact on a junior lender—remains a “good faith” purchaser entitled to the protections under Section 363(m) of the Bankruptcy Code.
The U.S. Supreme Court recently issued its latest bankruptcy opinion in MOAC Mall Holdings LLC v. Transform Holdco LLC, holding that the Bankruptcy Code’s rule against invalidating 363 sales after appeal is not an iron-clad jurisdictional bar, but rather a mere statutory limitation.[1]
Just hours after the United States Bankruptcy Court for the District of New Jersey entered an order dismissing the Chapter 11 Case of Johnson & Johnson subsidiary, LTL Management, as a bad faith filing, LTL filed for Chapter 11 protection again in the same Bankruptcy Court.
Delaware Judge Brendan Shannon has joined calls for reforming Section 546(e) of the bankruptcy code, echoing concerns that the section’s safe harbor from fraudulent transfer liability has allowed investors to “loot privately held companies to the detriment of their non-insider creditors with effective impunity.”[1]
In a decision that once again evidences the Fifth Circuit’s strong stance on the finality of asset sales in bankruptcy absent a stay of the applicable order, on March 8, 2023 the United States District Court for the Southern District of Texas published a memorandum opinion and order affirming a bankruptcy court’s exercise of Bankruptcy Code provisions to strip subrogation rights of certain sureties (the “Sureties”) against an asset purchaser.
In the second largest US bank failure since the 2008 global financial crisis, the California Department of Financial Protection and Innovation took over Silicon Valley Bank (“SVB”) on March 10 and appointed the Federal Deposit Insurance Corporation (“FDIC”) as SVB’s receiver. Just two days later, the New York State Department of Financial Services took over another bank, Signature Bank, and appointed the FDIC as receiver. And, yesterday, the share price of various European banks plunged following record one-day selloffs.
The recent decision by the US Third Circuit Court of Appeals in In re LTL Management, LLC did not address or negate the viability of divisive mergers of entities under the Texas Business Organizations Code (the “TBOC”). Various news articles concerning the decision have reported that the court disapproved of the so-called “Texas Two-Step” transactions undertaken by Johnson & Johnson (“J&J”) in the face of its mounting talc tort litigation.
In a decision that may provide much-needed boundaries around the permissibility of debtors created from “out-of-the-box” prepetition corporate transactions, on January 30, 2023, the United States Court of Appeals for the Third Circuit issued a unanimous opinion dismissing Johnson & Johnson subsidiary LTL Management, LLC’s (“LTL”) chapter 11 case pending in the United States Bankruptcy Court for the District of New Jersey as not being filed in good faith.1
On Monday, January 30, 2023, the Third Circuit in In re LTL Management, LLC1 ordered debtor LTL Management, LLC’s (“LTL”) chapter 11 petition dismissed for failure to demonstrate that the petition was filed in good faith pursuant to the Bankruptcy Code.2 The dismissal of LTL’s bankruptcy will also result in the termination of an injunction staying numerous lawsuits against third-parties—including lawsuits against certain third-party retailers being sued for allegedly having sold certain allegedly contaminated products.