A Texas judge rejected a request by one of Brazos Electric Power Cooperative’s (Brazos) creditors to arbitrate a contract dispute with Brazos over a shared coal plant, citing concerns that the arbitration could delay the bankruptcy case. Brazos is currently in a bankruptcy proceeding stemming from the historic 2021 Texas winter storm.
The Fifth Circuit recently weighed in on the hotly contested issue of whether the Federal Energy and Regulatory Commission (FERC) or the bankruptcy court has controlling jurisdiction when it comes to the question of a bankruptcy debtor’s ability to reject contracts regulated by FERC. FERC-regulated contracts include electricity power purchase contracts, as well as transportation services agreements involving oil and gas.
“The Congress shall have Power To . . . establish . . . uniform Laws on the subject of Bankruptcies throughout the United States.”
–U.S. Constitution’s Bankruptcy Clause (Art. 1, Sec. 8, cl. 4).
An Old Losing Streak—Article III
On June 6, 2022, the U.S. Supreme Court issued its opinion in Siegel v. Fitzgerald, in which the Court held that the Bankruptcy Judgeship Act of 2017, Pub. L. 115-72, Div. B, 131 Stat. 1229 (the “2017 Act”) was unconstitutional.
As we’ve previously reported, on February 19, 2020, Congress enacted the Small Business Reorganization Act (“SBRA”) to, among other things, streamline the chapter 11 bankruptcy process for small businesses. Under the SBRA, a “small business” was one with less than $2,725,625.00 in debt. Few businesses, however, were eligible to take advantage of these new provisions because their debts exceeded the cap.
The doctrine of equitable mootness is in the news again. The Supreme Court recently denied a cert. petition in a case where the petitioner wanted the doctrine ruled unconstitutional. KK-PB Financial LLC v. 160 Royal Palm LLC, Case No. 21-1197, 2021 WL 7247541 (petition), 2022 WL 1914118, (denying certiorari).
There is no set of fixed rules when negotiating intercreditor arrangements as every deal is fact-specific, generally subject to significant negotiation and ultimately dependent on competing business rationales and negotiating leverage. The below outline is a useful tool for understanding the basic mechanics and strategic bankruptcy considerations in negotiating and documenting intercreditor arrangements.
Intercreditor Agreements Under the Bankruptcy Code
“No State shall . . . pass any . . . Law impairing the Obligation of Contracts.”
–Art. I, Sec. 10, U.S. Constitution
Increasingly, states are expanding their laws on debtor/creditor relationships, such as receiverships and assignments for benefit of creditors.
Some of these expansions look suspiciously like a Bankruptcy Code Lite—e.g., adding “stay” provisions.
And that can be a constitutional problem, according to long-standing (and recent) opinions of the U.S. Supreme Court.
What follows is a brief summary of three such opinions.
On June 7, 2022, Congress passed (in a 392-21 vote) the “Bankruptcy Threshold Adjustment and technical Corrections Act,” which raises the debt limit back to $7.5 million for businesses electing treatment under the Small Business Reorganization Act (“SBRA”), codified under Subchapter V of Chapter 11.