Section 510(b) of the Bankruptcy Code provides a mechanism designed to preserve the creditor/shareholder risk allocation paradigm by categorically subordinating most types of claims asserted against a debtor by equity holders. However, courts do not always agree on the scope of the provision in attempting to implement its underlying policy objectives. The U.S. Court of Appeals for the Fifth Circuit recently examined the broad reach of section 510(b) in In re Linn Energy, 936 F.3d 334 (5th Cir. 2019).
An important aspect of the Puerto Rico Oversight, Management, and Economic Stability Act, 48 U.S.C. §§ 2101–2241 ("PROMESA")—the temporary stay of creditor collection efforts that came into effect upon its enactment—was the subject of a ruling handed down by the U.S. Court of Appeals for the First Circuit. In Peaje Investments LLC v. García-Padilla, 845 F.3d 505 (1st Cir. 2017), the First Circuit affirmed in part and vacated in part a lower court order denying two motions for relief from the PROMESA stay.
"Cramdown" chapter 11 plans, under which a bankruptcy court confirms a plan over the objection of a class of creditors, are relatively common. Less common are the subset of cramdown plans known as "cram-up" chapter 11 plans. These plans are referred to as such because they typically involve plans of reorganization that are accepted by junior creditors and then "crammed up" to bind objecting senior creditors.
To encourage creditors, equity interest holders, indenture trustees and unofficial committees to take actions that benefit a bankruptcy estate, section 503(b)(3)(D) of the Bankruptcy Code confers administrative priority on their claims for expenses incurred in making a "substantial contribution" in a chapter 9 or chapter 11 case. Administrative expense status is also given under section 503(b)(4) to their claims for reimbursement of reasonable professional fees incurred in making a substantial contribution. The U.S.
Chapter 15 of the Bankruptcy Code offers an effective mechanism for U.S. courts to provide assistance to non-U.S. courts presiding over the insolvency proceedings of foreign debtors with assets located in the U.S. An important feature of chapter 15 is "comity," the deference that U.S. courts give to the decisions of foreign courts under appropriate circumstances. A ruling recently handed down by the U.S. Court of Appeals for the Second Circuit illustrates that, although comity is an integral part of chapter 15, this chapter is far from the only context in which it applies.
The U.S. Bankruptcy Court for the Southern District of New York recently added some weight to the majority rule on a hot-button issue for claims traders. InIn re Firestar Diamond, Inc., 615 B.R. 161 (Bankr. S.D.N.Y. 2020), the court ruled that a transferred claim can be disallowed under section 502(d) of the Bankruptcy Code even if the entity holding the claim is not the recipient of a voidable transfer. According to the court, claim disallowance under section 502(d) "rests on the claim and not the claim holder."
Proposed Amendments to Chapter 15 of the Bankruptcy Code
In a highly anticipated decision, the U.S. Supreme Court ruled on March 22, 2017, in Czyzewski v. Jevic Holding Corp., No. 15-649, 2017 BL 89680 (U.S. Mar. 22, 2017), that, without the consent of affected creditors, bankruptcy courts may not approve "structured dismissals" providing for distributions which "deviate from the basic priority rules that apply under the primary mechanisms the [Bankruptcy] Code establishes for final distributions of estate value in business bankruptcies."
Background: Professionals’ Fees in Chapter 11 cases
Under Section 363(f) of the Bankruptcy Code, a debtor or trustee can sell estate assets “free and clear of any interest” in such assets. This short, simple string of six words represents one of the most powerful tools in the bankruptcy professional’s arsenal.