Overview: The Fifth Circuit’s highly anticipated decision on December 31, 2024, in the Serta Simmons case has significant implications for borrowers and lenders in financial distress situations. The issue on appeal concerned an uptier transaction, a liability management exercise sometimes referred to as “lender-on-lender violence.” The Fifth Circuit’s opinion addresses the contractual viability of uptier transactions and the enforceability of related indemnities in bankruptcy plans, potentially reshaping the landscape for future financial restructurings.
An involuntary bankruptcy can be a powerful tool in a creditor's arsenal. Involuntary bankruptcies are rarely filed, however, because of the significant risk of liability for the petitioning creditor if the case is dismissed. A creditor considering filing an involuntary bankruptcy must understand the requirements for filing involuntary bankruptcy cases, which are strictly construed and applied, and be mindful of the associated risks.
When a company files for bankruptcy, its creditors often ask the same question: will I get paid? The answer, in part, depends on the priority and proposed treatment of each creditor's claim in the bankruptcy (i.e., who gets paid and in what order).1 In addition to the Bankruptcy Code's other provisions affecting the priority of a claim, the doctrines of recharacterization and equitable subordination can affect the priority of a challenged claim by effectively postponing or eliminating payment on the claim.
Recharacterization
Often, after filing a proof of claim, a creditor can go months, or even years, without hearing anything regarding their claim. Then, unexpectedly, the creditor's proof of claim faces an objection, possibly on multiple grounds, with a limited window to respond. A claim objection can raise several important strategic considerations for crafting the best response.
Key Issues
An assignment for the benefit of creditors (ABC) is a process by which a financially distressed company (referred to as the assignor) transfers its assets to a third-party fiduciary (referred to as the assignee). The assignee is responsible for liquidating those assets and distributing the proceeds to the assignor's creditors, pursuant to the priorities established under applicable law. From the perspective of a creditor, there are many important distinctions between an ABC and a bankruptcy case.
Key Issues
As we turn to a new year, my wife and I like to reminisce about our best days and milestones of the prior year (for 2023, it was a huge celebration with our best friends for my wife’s birthday, an epic bike ride with our kids on a beautiful day in Kiawah, and seeing “the Boss” in concert in Greensboro). Professionally, I find myself thinking about my friend and mentor, George Cauthen, who reached a milestone and retired from the active practice of law in 2023.
In Matter of Imperial Petroleum Recovery Corp., 84 F.4th 264 (5th Cir. 2023), the Fifth Circuit was asked to address whether 28 U.S.C. § 1961(a) – the federal statute providing for post-judgment interest – applies in adversary proceedings even though 28 U.S.C. § 1961(a) doesn’t explicitly refer to bankruptcy courts.
In earlier posts, the Red Zone has discussed the Supreme Court’s ruling in Siegel v. Fitzgerald, 142 S. Ct. 1770 (2022), which held that increased U.S.
In earlier posts, the Red Zone has discussed the Supreme Court’s ruling in Siegel v. Fitzgerald, 142 S. Ct. 1770 (2022), which held that increased U.S. Trustee quarterly fees for large Chapter 11 debtors between 2018 and 2020 under the Bankruptcy Judgeship Act of 2017 (the “2017 Act”) were unconstitutional because of disparate treatment of Chapter 11 debtors in Bankruptcy Administrator (“BA”) districts, and subsequent judicial decisions determining the appropriate remedy for debtors who overpaid those fees.
On July 25, 2023, the United States Court of Appeals for the Fifth Circuit issued an important opinion protecting the rights of stalking horse bidders in Section 363 sales. In the Matter of Bouchard Transportation Company, Inc. involved one of the largest petroleum shipping companies in the United States. Bouchard sought to sell a large portion of its assets, consisting of certain vessels, through a Bankruptcy Court approved auction. In anticipation of the auction, Bouchard sought, and the Bankruptcy Court entered a bidding procedures order.