A recent decision by the United States Bankruptcy Court for the Southern District of Texas in In re Walker County Hospital Corporation serves as an important reminder to clients that are purchasing or renewing directors and officers (“D&O”) insurance coverage that the “Insured versus Insured” exclusion must contain the broadest possible exceptions for claims brought against directors and officers following a bankruptcy filing. Without the specific policy language, current and former directors and officers may be exposed to personal liability.

One common denominator links nearly all stressed businesses: tight liquidity. After the liquidity hole is identified and sized, the discussion inevitably turns to the question of who will fund the necessary capital to extend the liquidity runway. For a PE-backed business where there is a credible path to recovery, a sponsor, due to its existing equity stake, is often willing to inject additional capital into an underperforming portfolio company.

In a much-anticipated decision, the United States Court of Appeals for the Third Circuit recently held that unsecured noteholders’ claims against a debtor for certain “Applicable Premiums” were the “economic equivalent” to unmatured interest and, therefore, not recoverable under section 502(b)(2) of the Bankruptcy Code.

Since the first Johnson & Johnson talc bankruptcy was filed in 2021, Judge Michael Kaplan has faced countless disagreements in the US Bankruptcy Court. These range from discovery fights, disputes over administration of tens of thousands of individual claims and all-out conflict over the total amount in controversy.

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 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

In late December, the U.S. District Court for the District of Delaware issued an opinion in In re: Mallinckrodt PLC affirming the Mallinckrodt bankruptcy court's November 2021 decision that the debtor could discharge certain post-petition, post-confirmation royalty obligations for the sale of the company's Acthar gel.

The district court's affirmation serves as a reminder to holders of intellectual property that a debtor's fresh start under the U.S. Bankruptcy Code could trump royalty obligations that are found to be contingent claims arising as of the time of the transaction.