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The Bankruptcy Court for the District of New Jersey denied the Debtors’ request for approval of a sale of property free and clear of liens encumbering the property. The court determined that the term “value” in section 363(f)(3) of the Bankruptcy Code referred to the face value of all liens on the property and not the “economic value”. Because the value of liens encumbering the property in this case exceeded the proposed sale price, the property could not be sold free and clear of all liens pursuant to section 363(f)(3).

On Nov. 17, 2016, the United States Court of Appeals for the Third Circuit issued an important decision in favor of holders of more than $4 billion in secured first and second lien notes issued by Energy Future Intermediate Holding Co. LLC (EFIH), which unwillingly had their secured notes repaid ahead of schedule in bankruptcy without payment of the “make-whole” required under the indentures. In re Energy Futures Holding Co., No. 16-1351 (3d Cir. Nov. 17 2016).

Market participants involved in distressed exchange offers have become accustomed to grappling with the implications of Trust Indenture Act Section 316(b) in the context of potential exit consents, i.e., are the contemplated amendments to the indenture governing the securities subject to the exchange significant enough to impair or affect the right of a holder to receive payment of principal and interest on or after the due dates of the relevant note?

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The Bottom Line:

The Bottom Line:

Over the last several weeks, Judge Allan L. Gropper of the United States Bankruptcy Court for the Southern District of New York has issued two rulings in the Northwest Airlines case that threaten to alter significantly the consequences to distressed investors of serving on ad hoc committees in bankruptcy cases.

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The Bottom Line

In Lariat Cos. v. Wigley(In re Wigley), Case No. 18-3489 (8th Cir. March 9, 2020), the Eighth Circuit held that a claim against Debtor B that arose out of a fraudulent transfer made by Debtor A to Debtor B was subject to the statutory cap applicable to lease rejection damages where Debtor A’s underlying liability was premised on its breach of a lease.

What Happened?

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