As reported by multiple news media outlets, WeWork sought bankruptcy court protection on November 6, 2023, in New Jersey while it reorganizes its debts. One of the driving forces of the bankruptcy is disclosed to be its heavy commercial lease burden, with roughly 69 of its leases on the immediate chopping block.

Background

On April 19, 2023, the U.S. Supreme Court issued its opinion inMOAC Mall Holdings LLC v. Transform Holdco LLC, 598 U.S. (2023), reversing the Second Circuit decision and determining that the limitations on appeals of bankruptcy sale orders provided in section 363(m) of the Bankruptcy Code are not jurisdictional. Rather section 363(m) merely provides a "caveated constraint" on the appellant’s remedies on such appeals.

On June 27, 2022, the U.S. Supreme Court granted certiorari inMOAC Mall Holdings LLC v. Transform Holdco LLC (21-1270) to resolve a Circuit split over whether section 363(m) of the Bankruptcy Code limits appellate jurisdiction over bankruptcy sale orders or simply limits the appellant’s remedies on such appeals. Given the now decades-long trend toward resolving Chapter 11 cases through asset sales, including assignments of leases and contracts, the Supreme Court’s decision may provide clarity to a vitally important part of modern Chapter 11 practice.

On April 28, 2022, Central District of California Bankruptcy Judge Ernest M. Robles issued a decision regarding the eligibility of a debtor to proceed as a Small Business Debtor under Subchapter V of the Bankruptcy Code.

Agricultural economists have long warned of a looming farm crisis. However, for the most part, they have been wrong. In 2021, nationwide Chapter 12 family farmer bankruptcy filings were at second lowest level since Chapter 12 was enacted in 1987. The low level of Chapter 12 filings is all the more surprising given that Congress more than doubled the debt limit for Chapter 12 eligibility (to $10 million) in 2019.

Reaching an outcome in line with two other circuit courts, on February 16, 2022, the Fifth Circuit Court of Appeals permitted a Chapter 11 trustee to sell a debtor’s real property free and clear of the leasehold estates held by certain non-debtor lessees. See In re Royal Street Bistro, L.L.C., 2022 WL 499938 (5th Cir. February 16, 2022)(the “Ruling”)

The Small Business Reorganization Act of 2019 (SBRA) added subchapter V to chapter 11. In defining the eligibility for subchapter V, Congress amended the Bankruptcy Code’s definition of a “small business debtor” to exclude specifically corporations that are subject to the reporting requirements under the Securities Exchange Act of 1934, essentially making publicly traded companies ineligible for subchapter V.

A newly created subsidiary of Johnson & Johnson recently filed Chapter 11 to manage 38,000 pending talc-related lawsuits and future talc-related claims. There is nothing especially new about using Chapter 11 to deal with mass tort litigation. In the past three decades, thousands of companies, dozens of religious organizations, and even the Boy Scouts of America have filed Chapter 11 because of mass tort claims.

Congress originally conceived the new Subchapter V to “streamline the bankruptcy process by which small business debtors reorganize and rehabilitate their financial affairs.” The new Subchapter became effective on February 19, 2020, and the COVID-19 pandemic began in earnest less than a month later. The pandemic caused Congress to almost triple the Subchapter V debt limit from approximately $2.7 million to $7.5 million. However, the increased debt limit will expire in March 2022 if Congress does not act to extend it.