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

Le 27 juin 2024, la Cour suprême des États-Unis a publié une décision très attendue qu’elle a rendue dans l’affaire William K. Harrington, United States Trustee, Region 2, Petitioner v. Purdue Pharma L.P. et al. (l’« affaire Purdue »).

On June 27, 2024, the Supreme Court of the United States released its highly anticipated decision in William K. Harrington, United States Trustee, Region 2, Petitioner v. Purdue Pharma L.P. et al. (Purdue). At issue was whether the U.S. bankruptcy court had jurisdiction to confirm a plan that provided for releases in favour of non-debtor parties, including parties providing a significant monetary contribution in support of the plan itself.

Plusieurs décisions judiciaires notables et mises à jour législatives importantes pour les prêteurs commerciaux, les entreprises et les professionnels de l’insolvabilité ont marqué l’année 2023. Le présent bulletin résume les principaux développements survenus en 2023 et met en lumière les points saillants à connaître en 2024.

1. Régime de priorité

En 2023, plusieurs affaires et mises à jour législatives ont soulevé des questions importantes concernant le régime de priorité dans le cadre des procédures d’insolvabilité.

Several significant judicial decisions and legislative updates occurred in 2023 that are relevant to commercial lenders, businesses and restructuring professionals. This bulletin summarizes the key developments of 2023 and highlights areas of significance to be aware of in 2024.

1. Priority Scheme

In 2023, several cases and legislative updates raised important questions regarding the priority scheme in insolvency proceedings.

Environmental Priorities

Dans le contexte en constante évolution des lois canadiennes en matière d’insolvabilité, le regroupement de patrimoines se révèle comme un recours puissant. Bien qu’il soit rarement utilisé, il est susceptible d’entraîner des répercussions importantes pour les entités débitrices visées et leurs créanciers. C’est d’ailleurs ce que souligne une décision récente de la Cour d’appel du Manitoba, laquelle met en avant cet élément complexe, mais crucial, du droit de l’insolvabilité.

REGROUPEMENT DE PATRIMOINES