Two fundamental goals of chapter 11 of the Bankruptcy Code are rehabilitating a debtor’s business and maximizing the value of the debtor’s estate for the benefit of various stakeholders.

On June 13, the Pension Benefit Guaranty Corporation (“PBGC”) released a final rule that, in most cases, will reduce the amount of pension benefits guaranteed under the agency’s single-employer insurance program when a pension plan is terminated in a bankruptcy case. The rule will also decrease the amount of pension benefits given priority in bankruptcy.

In a recent decision, Judge Mary F. Walrath of the United States Bankruptcy Court for the District of Delaware greatly limited debtors’ ability to release parties under a chapter 11 plan in the bankruptcy cases of Washington Mutual, Inc. (“WMI”), and its debtor affiliates (together with WMI, the “Debtors”). In In re Washington Mutual, Inc., Judge Walrath approved a global settlement agreement (the “Global Settlement”) reached by the Federal Deposit Insurance Corporation (“FDIC”) as receiver for Washington Mutual Bank (“WaMu Bank”); JPMorgan Chase Bank, N.A.

Preservation of favorable tax attributes, such as net operating losses that might otherwise be forfeited under applicable nonbankruptcy law, is an important component of a business debtor's chapter 11 strategy. However, if the principal purpose of a chapter 11 plan is to avoid paying taxes, rather than to effect a reorganization or the orderly liquidation of the debtor, the Bankruptcy Code contains a number of tools that can be wielded to thwart confirmation of the plan.

The solicitation of creditor votes on a plan is a crucial part of the chapter 11 process. At a minimum, a chapter 11 plan can be confirmed only if at least one class of impaired creditors (or interest holders) votes to accept the plan. A plan proponent’s efforts to solicit an adequate number of plan acceptances, however, may be complicated if creditors or other enfranchised stakeholders neglect (or choose not) to vote.

In a significant Delaware law decision regarding creditors’ ability to sue corporate fiduciaries, the Delaware Supreme Court recently addressed the issue of whether a corporate director owes fiduciary duties to the creditors of a company that is insolvent or in the “zone of insolvency.” In North American Catholic Educ. Programming Found., Inc. v. Gheewalla, the court concluded that directors of a solvent Delaware corporation that is operating in the zone of insolvency owe their fiduciary duties to the corporation and its shareholders, and not creditors.

The ability of a creditor whose claim is “impaired” to vote on a chapter 11 plan is one of the most important rights conferred on creditors under the Bankruptcy Code. The voting process is an indispensable aspect of safeguards built into the statute designed to ensure that any plan ultimately confirmed by the bankruptcy court meets with the approval of requisite majorities of a debtor’s creditors and shareholders and satisfies certain minimum standards of fairness.

In Weisfelner v. Fund 1 (In re Lyondell Chem. Co.), 503 B.R. 348
(Bankr. S.D.N.Y. 2014), the U.S. Bankruptcy Court for the Southern
District of New York held that the “safe harbor” under section
546(e) of the Bankruptcy Code for settlement payments made
in connection with securities contracts does not preclude
claims brought by a chapter 11 plan litigation trustee on behalf
of creditors under state law to avoid as fraudulent transfers
pre-bankruptcy payments to shareholders in a leveraged buyout

InGrayson Consulting, Inc. v. Wachovia Securities, LLC (In re Derivium Capital LLC), 716 F.3d 355 (4th Cir. 2013), the U.S. Court of Appeals for the Fourth Circuit examined whether certain securities transferred and payments made during the course of a Ponzi scheme could be avoided as fraudulent transfers under sections 544 and 548 of the Bankruptcy Code. The court upheld a judgment denying avoidance of pre-bankruptcy transfers of securities because the debtor did not have an “interest” in the securities at the time of the transfers.

In a much-awaited judgment, the UK Supreme Court has decided that the liability of a company in administration or liquidation to contribute to an under-funded pension fund following a Financial Support Direction or a Contribution Notice is a provable debt ranking equally with other unsecured creditors. Crucially, it is not an expense of the administration or liquidation which would cause it to rank ahead of all creditors (except fixed charge holders) and even the administrator's or liquidator's own remuneration.