In February 2016, Energy Future Holdings Corp. (“EF”), which obtained confirmation of a chapter 11 plan on December 3, 2015, prevailed at the district court level in related appeals brought by first- and second-lien noteholders of bankruptcy court orders disallowing the noteholders’ claims for make-whole premiums allegedly due under their note indentures. The forum in this hotly contested and long-running dispute has now moved to the Third Circuit Court of Appeals.
Enforceability of Make-Whole Premiums in Bankruptcy
One of the prerequisites to confirmation of any chapter 11 plan is that at least one “impaired” class of creditors must vote in favor of the plan. This requirement reflects the basic (but not universally accepted) principle that a plan may not be imposed on a dissident body of stakeholders of which no class has given approval. However, it is sometimes an invitation to creative machinations designed to muster the requisite votes for confirmation of the plan.
Over the past 21 years, two U.S. district court judges in the Southern District of New York have held that the avoidance powers conferred on a bankruptcy trustee or chapter 11 debtor-in-possession under the Bankruptcy Code do not apply to pre-bankruptcy transfers made by a debtor outside the United States. However, a U.S. bankruptcy court judge in the same district recently reached the opposite conclusion in Weisfelner v. Blavatnik (In re Lyondell), 543 B.R. 127 (Bankr. S.D.N.Y. 2016). In Lyondell, bankruptcy judge Robert E.
On Tuesday, March 8, 2016, U.S. Bankruptcy Judge Shelley C. Chapman in New York permitted Sabine Oil & Gas Corporation to reject three gas gathering and handling agreements with Nordheim Eagle Ford Gathering, LLC and HPIP Gonzales Holdings, LLC. All of the agreements are governed by Texas law.
Allowance of Claims—Make-Whole Premiums
On November 17, 2016, the Third Circuit Court of Appeals issued a highly anticipated ruling in the chapter 11 reorganization of Energy Future Holdings Corp. ("EFH"), invalidating one of the aspects of EFH’s confirmed chapter 11 plan. InDel. Tr. Co. v. Energy Future Intermediate Holding Co. LLC (In re Energy Future Holdings Corp.), 842 F.3d 247 (3d Cir. 2016), a three-judge panel of the Third Circuit reversed lower court rulings disallowing the claims of EFH’s noteholders for hundreds of millions of dollars in make-whole premiums allegedly due under their indentures.
In Travelers Cas. & Sur. Co. of America v. Pacific Gas and Elec. Co., 549 U.S. 443 (2007), the U.S. Supreme Court rejected the Ninth Circuit’s long-standing Fobian rule disallowing claims against a bankruptcy estate for attorney’s fees arising from litigating issues that are “peculiar to federal bankruptcy law,” rather than basic contract enforcement. In so ruling, the Court recognized the presumption that “claims enforceable under applicable state law will be allowed in bankruptcy unless they are expressly disallowed.”
Section 547(c)(2) of the Bankruptcy Code excepts from the trustee’s power to avoid preferential transfers any transaction in which the debtor transfers property to a creditor in the “ordinary course of business.” Exactly what constitutes “ordinary course of business,” however, is not a settled question of law. In Jubber v. SMC Electrical Products (In re C.W. Mining Co.), 798 F.3d 983 (10th Cir. 2015), the U.S. Court of Appeals for the Tenth Circuit considered whether a first-time transaction between a debtor and a creditor can satisfy the ordinary course exception.
In In re Energy Future Holdings Corp., 540 B.R. 109 (Bankr. D. Del. 2015), the bankruptcy court ruled that, although a chapter 11 plan proposed by solvent debtors need not provide for the payment of postpetition interest on unsecured claims to render the claims unimpaired, the plan must provide that the court has the discretion to award such interest at an appropriate rate “under equitable principles.” The ruling highlights the important distinction between the allowance of a claim in bankruptcy and the permissible treatment of the claim under a chapter 11 plan.