Every now and then we get a bankruptcy opinion declaring a rule with broad application that, (i) may make sense is specific situations, but (ii) is a terrible result for others.
Here’s an Exhibit A opinion for such a proposition: Reinhart Foodservice LLC v. Schlundt, Case No. 21-cv-1027 in the U.S. District Court for Eastern Wisconsin, (Doc. 12, issued October 27, 2022).
The Facts
Poor Chicago.
Unlike the result for Chicago’s traffic ticket income in Fulton v. Chicago, the U.S. Supreme Court refuses to rescue Chicago in City of Chicago v. Mance (Case No. 22-268; Cert. denied, 11/21/2022).[Fn. 1]
Four decades and several years ago, Congress repeals the Federal Bankruptcy Act of 1898 and replaces it with the Bankruptcy Reform Act of 1978, aka the “Bankruptcy Code.”[Fn. 1]
A decade later, Justices on the U.S. Supreme Court are still disparaging the new Bankruptcy Code as the “sweeping changes Congress instituted in 1978” and “the radical reforms of 1978.”[Fn. 2]
Every now and then we get an example of how a process should work.
That’s exactly what we have, regarding confirmation of a contested Subchapter V plan, in the case of In re Lapeer Aviation, Inc., Case No. 21-31500 in the Eastern Michigan Bankruptcy Court.
In an opinion issued October 12, 2022, (Doc. 264), the Lapeer Court declares that, (i) most of the plan confirmation standards are satisfied, but (ii) the plan is deficient under two confirmation standards and, therefore, cannot be confirmed.
During a November 9, 2022, hearing on summary judgment motions in the Hertz bankruptcy, Delaware Bankruptcy Judge Mary F. Walrath issues the following oral ruling:
A common yet contentious liability management strategy is an “uptier” transaction, where lenders holding a majority of loans or notes under a financing agreement seek to elevate or “roll-up” the priority of their debt above the previously pari passu debt held by the non-participating minority lenders. In a recent decision in the Boardriders case, the minority lenders defeated a motion to dismiss various claims challenging an uptier transaction.
The case is Wells v. McCallister, Case No. 21-1448 in the United States Supreme Court.
The question presented is:
- whether a debtor’s homestead exemption, existing on the date of bankruptcy filing, can vanish if the debtor sells the homestead during the bankruptcy and does not promptly reinvest the proceeds in another homestead.
The Petition for writ of certiorari explains:
For some reason, there is a fascination out there (not sure where, exactly) with having every assignment for benefit of creditors (“ABC”) supervised by a court from the get-go.
This fascination suggests that every ABC effort requires court action and judicial approvals, from the beginning and throughout the assignment, to assure that everything about the ABC and its administration is on the up-and-up.
Startling and Puzzling
This fascination is both startling and puzzling. Here are some reasons why.
In an important decision to private credit lenders, the Fifth Circuit Court of Appeals held that a make-whole premium for an unsecured creditor tied to future interest payments is the “functional equivalent of unmatured interest” and not recoverable under Section 502(b)(2) of the Bankruptcy Code. Ultra Petroleum Corp. v. Ad Hoc Committee of OpCo Unsecured Creditors (In re Ultra Petroleum Corp.), No. 21-20008 (5th Cir. Oct. 14, 2022) (“Ultra”). Ordinarily, the story ends here.
In its Siegel v. Fitzgerald opinion, the U.S. Supreme Court declares that disparate quarterly fee amounts between U.S. Trustee and Bankruptcy Administrator districts are unconstitutional, under the uniformity requirement of the U.S. Constitution’s bankruptcy clause.
The most recent fallout from that opinion is the following docket entry by the U.S. Supreme Court in a different case with the same issues: