The Delaware Bankruptcy Court (“Bankruptcy Court”) recently issued a ruling that provides additional clarity regarding the treatment of “appraisal rights” in bankruptcy proceedings and the scope of section 510(b) of the Bankruptcy Code. In In reRTI Holding Company, LLC, et al., (decided August 4, 2021) the Bankruptcy Court subordinated the general unsecured claims filed by holders of “appraisal rights” in respect of the debtors’ equity (the “Claimants”).

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. Here are this week’s updates.

Monday, July 19, 2021 

Bankruptcy

After a sluggish year in 2020 for mergers and acquisitions among hospitals and health systems, 2021 has shown renewed vigor and is poised for considerable transactional activity.

The ability to assume or reject executory contracts is one of the primary tools used by debtors in a Chapter 11 reorganization. Where a debtor has a contract with a third party that is “executory”—meaning that ongoing performance obligations remain for both the debtor and the contract counterparty on the date of the bankruptcy filing—the debtor can choose to either assume or reject the contract under 11 USC § 365.

Subordination agreements are generally enforced in accordance with applicable non-bankruptcy law in bankruptcy cases. The decision in In re Fencepost Productions, Inc., No. 19-41542, 2021 WL 1259691 (Bankr. D. Kan. Mar. 31, 2021) recognizes limits to this rule. While the subject subordination agreements were generally enforceable, the assignment of Chapter 11 voting rights in such agreements was not.

On 20 May 2021, the UK government published a consultation paper in which it set out its proposals to revise the current regime for insolvent insurers (excluding Lloyd’s underwriters). The proposals seek to clarify and enhance aspects of the existing “write-down” power of the court under Section 377 of the Financial Services and Markets Act 2000.

Most corporate bankruptcy filings result in either a plan of reorganization under Chapter 11 of the Bankruptcy Code (the Code) or a liquidation under Chapter 7 of the Code. Sometimes, however, neither option is viable and the debtor may need to seek a “structured dismissal” in accordance with Section 349 of the Code. Structured dismissals provide administratively insolvent debtors with a framework to distribute the estate’s remaining assets (without the additional cost of a Chapter 7 liquidation), wind down the estate, and obtain final dismissal of the case.

US Bankruptcy Judge Mary F. Walrath of the District of Delaware entered an order on April 21 in In re Nine Point Energy Holdings, Inc., Case No. 21-10570 (MFW) (Bankr. D. Del. Apr. 21, 2021), finding that Caliber Measurement Services LLC, Caliber Midstream Fresh Water Partners LLC, and Caliber North Dakota LLC (together, Caliber) violated the automatic stay by sending “reservation of rights” letters to third parties that were providing services allegedly in violation of agreements between Caliber and Nine Point Energy Holdings, Inc.

The German Act on the Further Development of the Restructuring and Insolvency Law (Sanierungs- und Insolvenzrechtsfortentwicklungsgesetz – SanInsFoG) took effect on January 1, 2021, transforming the European Restructuring Directive of June 20, 2019 ((EU) 2019/1023) and introducing a self-administrated restructuring option outside the standard insolvency proceeding.

The Pre-Insolvency Restructuring Plan

On January 12, 2021, the Department of Justice (DOJ) announced the first civil settlement resolving allegations of fraud involving loans issued pursuant to the Paycheck Protection Program (PPP). SlideBelts Inc., an internet retail company, and Brigham Taylor, the company’s president and CEO, agreed to pay $100,000 in penalties and damages to resolve alleged violations of the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).