The Year in Bankruptcy: 2024

The first full year of the post-COVID-pandemic era was characterized in the United States by continued economic recovery, persistently high consumer interest rates—despite three cuts in the benchmark federal funds rate in 2024, low unemployment, lower but still stubborn inflation, supply-chain disruptions caused by overseas conflicts, changing consumer spending preferences, the persistent malaise of the U.S. health care sector, auto industry headwinds prompted by decreased demand for electric vehicles, higher labor costs, and uncertainty regarding the financial and economic ramifications of the results of the 2024 elections (including the prospect of international trade wars).

One year ago, we wrote that 2023 would be remembered in the annals of business bankruptcy for: (i) the long-smoldering controversy regarding the legitimacy of seeking bankruptcy protection as a way to deal with mass-tort liabilities in chapter 11 plans that release company owners and other insiders from liability as a quid pro quo for funding payments to creditors; (ii) the propriety of the "Texas Two-Step," a corporate reorganization technique used by several prominent companies in combination with a bankruptcy filing to deal with mass tort liabilities; (iii) the increasing incidence of "creditor-on-creditor" litigation in bankruptcy related to "position enhancement" transactions; (iv) "crypto accountability," both in the nation's bankruptcy and criminal courts; and (v) spectacular bank failures triggered by the inability of lenders like Silicon Valley Bank and First Republic Bank to deal with a stampede to withdraw billions of dollars in customer deposits because they were tied up in long-term investments—leading to urgent regulatory action to prevent systemic risk in the banking sector.  

Some of those issues continued to occupy center stage in 2024. 

In June, the U.S. Supreme Court ruled unequivocally in the Purdue Pharma chapter 11 cases that nonconsensual third-party releases in chapter 11 plans—a mainstay (albeit somewhat controversial in the United States and less so abroad) in many large chapter 11 cases for decades—are prohibited by the Bankruptcy Code. The decision set off a firestorm in the business bankruptcy landscape, resulting principally in the development of innovative mechanisms designed to pass muster under the Supreme Court's ruling by ensuring that any non-debtor releases in a chapter 11 are deemed consensual, and therefore permitted. 

In July, a federal circuit court of appeals dismissed for the second time a chapter 11 filing by Johnson & Johnson indirect subsidiary LTL Mgmt. LLC, which was created as part of a Texas Two-Step corporate restructuring pursuant to which the debtor had assumed responsibility for the manufacturer's talc-related liabilities. The appellate court held that the filing was not made in good faith because the debtor was not in financial distress, and the chapter 11 case did not serve a "valid bankruptcy purpose." The ruling prompted a third bankruptcy filing in September with a prepackaged chapter 11 case and a widely supported plan that, if confirmed, would create an $8 billion settlement fund designed to pay talc claims over time. A motion to dismiss that case as not having been filed in good faith is pending in a Texas bankruptcy court and is expected to be heard in February 2025. 

In December, a different federal circuit court of appeals vacated a bankruptcy court order confirming the chapter 11 plan of Serta Simmons Bedding, LLC to the extent that the plan included a provision indemnifying certain lenders in connection with a 2020 "uptier" transaction whereby Serta issued new debt secured by a priming lien on its assets and purchased its existing debt from participating lenders at a discount with a portion of the proceeds. According to the court, the exchange violated the terms of Serta's 2016 credit agreement because it was not a permissible "open market purchase" and the indemnities in the plan for participating lenders were improper under the Bankruptcy Code. 

Also in December, a New York bankruptcy court confirmed a joint chapter 11 plan for the Roman Catholic Diocese of Rockville Centre, Long Island, the sixth-largest Catholic diocese in the United States, and its 136 parishes (the latter, following "rapid" prepackaged reorganizations lasting no more than 48 hours) after reaching a settlement with the Diocese's insurers to fund in part distributions to victims of abuse under a settlement trust in exchange for a consensual release of liabilities comporting with the U.S. Supreme Court's ruling in the Purdue chapter 11 cases.

Some of these and other significant court decisions handed down in 2024 are discussed in more detail below in the section titled "Notable 2024 Business Bankruptcy Rulings." 

The year 2024 also saw a significant increase in the volume (roughly double) of cross-border bankruptcy cases filed under chapter 15 of the Bankruptcy Code. Enacted nearly 20 years ago to provide a framework for "recognition" of foreign bankruptcy cases in the United States and cooperation between U.S. and foreign bankruptcy courts under principles of international comity, chapter 15 has become a workhorse for dealing with cross-border bankruptcy and restructuring issues. It may also be the last refuge for nonconsensual third-party releases to the extent that such releases are approved by a foreign bankruptcy court and enforced in the United States after chapter 15 recognition of a foreign bankruptcy case.  

Business Bankruptcy Filings in 2024 

According to data provided by Epiq AACER, a leading provider of U.S. bankruptcy filing data, overall commercial bankruptcy filings increased 17% in calendar year 2024 to 30,009 from the 25,731 registered the previous year. Commercial chapter 11 filings increased 20% in 2024 to 7,879, from 6,583 filings in 2023. Small business subchapter V elections under chapter 11 also experienced a significant increase in 2024—despite the mid-year expiration of an increased debt threshold for eligibility. The 2,381 subchapter V filings in 2024 represented a 32% increase from the 1,808 recorded in 2023. 

According to data produced by Octus, a global provider of data, analytics and credit intelligence for leveraged finance and restructuring professionals, there were 30 chapter 11 filings in 2023 by companies with assets or liabilities exceeding $1 billion, compared to 21 in 2022. There were 102 bankruptcy filings in 2024 by companies with assets or debts of at least $100 million, compared to 110 in 2023 and 160 in 2022 

Bloomberg Law data indicate that chapter 15 petitions were filed in 2024 on behalf of 342 foreign debtors, compared to 164 chapter 15 filings in 2023. There were only two chapter 9 filings by municipalities in 2024, compared to only a single chapter 9 filing in 2023. 

Some of the most notable business chapter 11 bankruptcy filings in 2024 included the following: 

• Spirit Airlines Inc., the biggest budget airline in the United States, which filed for chapter 11 protection on November 18, 2024, in the Southern District of New York with approximately $9.5 billion in assets and $9 billion in debt and a pre-negotiated chapter 11 plan designed to implement a restructuring of its debt after the pandemic-caused swoon in travel, stiffer competition from bigger carriers, and a failed attempt to sell the airline to JetBlue. 
• Johnson & Johnson subsidiary Red River Talc LLC, which filed a pre-negotiated chapter 11 case on September 20, 2024, in the Southern District of Texas in a third bid to fully and finally resolve all current and future claims related to ovarian cancer arising from cosmetic talc litigation against J&J and its affiliates in the United States by means of an $8 billion bankruptcy trust to pay cancer claimants over 25 years. Jones Day represents Red River Talc LLC in its chapter 11 case.  
• Columbus, Ohio-based discount retailer Big Lots Inc., which, after closing hundreds of locations nationwide due to post-pandemic financial problems, filed for chapter 11 protection on September 9, 2024, in the District of Delaware with approximately $3.1 billion in assets and debt for the purpose of selling its business and assets. 
• Avon Products, Inc., a U.S.-based holding company of the Avon beauty brand, which filed for chapter 11 protection on August 12, 2004, in the District of Delaware with approximately $3.9 billion in assets and $5 billion in liabilities to restructure its debt and resolve legacy talc/asbestos liabilities. Avon Products has not sold products in the U.S. since it divested its North America business in 2016, but remains the holding company of the brand's non-U.S. operating entities. On December 4, 2024, the bankruptcy court approved a settlement between Avon Products and its Brazilian parent company, Natura & Co., that clears the way for the beleaguered cosmetics giant to sell itself to Natura for $125 million. 
• Sewing and crafts retailer Joann Inc., which filed for chapter 11 protection on March 15, 2024, in the District of Delaware (after losing market share as crafting has declined and competition has intensified) with approximately $2.3 billion in debt and $2.4 billion in assets seeking confirmation of a prepackaged chapter 11 plan that would allow the company to eliminate $500 million in debt and emerge from bankruptcy as a privately owned entity. The bankruptcy court confirmed Joann's chapter 11 plan on April 25, 2024. However, citing "unanticipated inventory challenges" added to the challenges of a "sluggish retail economy," Joann filed for chapter 11 protection again on January 15, 2025. 
• Ventilator maker and respiratory diagnostics company Vyaire Medical Inc., which filed for chapter 11 protection on June 9, 2024, in the District of Delaware with approximately $3.7 billion in debt and $1.6 million in assets for the purpose of selling its businesses and assets. After approving the sale of Vyaire's businesses, the bankruptcy court confirmed a liquidating chapter 11 plan for the company on November 14, 2024. 
• Dallas-based Steward Health Care System LLC, operator of the largest private physician-owned for-profit health care network in the United States with 31 locations across eight states, which filed for chapter 11 protection on May 6, 2024, in the Southern District of Texas with approximately $5.6 billion in assets and $10 billion in debt.  
• Enviva Inc., the world's largest producer of industrial wood pellets made from compressed sawdust, which, in one of the most dramatic collapses of the green-energy investing boom, filed for chapter 11 protection on March 12, 2024, in the Eastern District of Virginia with approximately $2.9 billion in assets and $2.6 billion in debt for the purpose of implementing a debt-for-equity swap that would create a private company. 
• Thrasio Holdings Inc., one of the largest third-party sellers on the Amazon marketplace, which filed for chapter 11 protection on February 28, 2024, in the District of New Jersey due to the post-pandemic slump in online spending with approximately $2.4 billion in assets and debt to implement the terms of a restructuring support agreement that would eliminate approximately $500 million of debt and infuse new capital into the company. The bankruptcy court confirmed Thrasio's chapter 11 plan on June 13, 2024.  
• Audacy Inc., one of the largest operators of commercial radio stations in the United States, which filed for chapter 11 protection amid a plunging advertising market on January 7, 2024, in the Southern District of Texas with approximately $2.8 billion in assets and $2.7 billion in debt to implement a prepackaged chapter 11 plan that would allow it to reduce $1.6 billion in debt by means of a debt-for-equity swap. The bankruptcy court confirmed Audacy's prepackaged plan on February 20, 2024. 
• Party goods retailer Party City Holdco Inc., which plunged into bankruptcy for the second time in two years on December 21, 2024, when it filed for chapter 11 protection in the Southern District of Texas listing more than $1 billion in assets and debt for the purpose of winding down its operations and closing approximately 700 store locations after failing to weather faltering sales under the yoke of stubborn inflation and competition from online sellers. 

There were several notable exits from bankruptcy during 2024 (in addition to those discussed above), including:  

• The Roman Catholic Diocese of Rockville Centre, Long Island, the sixth-largest Catholic diocese in the United States, serving approximately 1.5 million people in 136 parishes, which obtained confirmation of a joint chapter 11 plan on December 4, 2024, for itself and its parishes (the latter, following "rapid" prepackaged reorganizations lasting no more than 48 hours) after reaching a settlement providing for the sale of its insurance policies back to the insurers in exchange for $85 million to be used to fund in part distributions to victims of abuse under a settlement trust in exchange for a consensual release of liabilities comporting with the U.S. Supreme Court's ruling in Harrington, United States Trustee, Region 2 v. Purdue Pharma L.P., ___ U.S. ___, 144 S. Ct. 2071 (2024);  
• Prepackaged software services provider 2U Inc., which obtained confirmation of a pre-negotiated chapter 11 plan on September 9, 2024, under which the company went private after implementing a debt-for-equity swap cancelling existing shares and approximately $527 million in debt;  
• Electric vehicle startup Fisker Inc., which received court approval of a liquidating chapter 11 plan on October 11, 2024, following last-minute negotiations to preserve the company's $46 million sale of its remaining inventory of about 3,000 Ocean SUVs;  
• Consumer insights data producer Dynata, LLC, which obtained confirmation on July 2, 2024, of a prepackaged chapter 11 plan that eliminated 40% of its approximately $1.4 billion in debt; 
• U.S. and Canadian consumer credit lender Curo Group Holdings Corp., which obtained confirmation on May 16, 2024, of a prepackaged chapter 11 plan slashing the (now privately owned) company's debt by approximately $1 billion, as well as recognition of the confirmed plan by a Canadian court; and  
• Careismatic Brands LLC, the world's largest medical apparel provider, which obtained confirmation of a pre-negotiated chapter 11 plan on May 31, 2024, that removed approximately $833 million in debt from its balance sheet. 

Jones Day represented Red River Talc LLC and the Roman Catholic Diocese of Rockville Centre, Long Island, as well as its affiliated debtors in their chapter 11 cases.  

Notable 2024 Business Bankruptcy Rulings 

Non-Debtor Releases in Chapter 11 Plans. The longstanding debate concerning the validity of nonconsensual third-party release provisions in non-asbestos trust chapter 11 plans was finally put to rest by the U.S. Supreme Court. On June 27, 2024, the Court handed down a long-awaited ruling regarding the validity of such releases in the chapter 11 plan of pharmaceutical company Purdue Pharma, Inc. and its affiliated debtors (collectively, "Purdue"). In Harrington, United States Trustee, Region 2 v. Purdue Pharma L.P., ___ U.S. ___, 144 S. Ct. 2071 (2024), a 5–4 majority of the Court reversed and remanded a 2023 ruling by the U.S. Court of Appeals for the Second Circuit affirming the bankruptcy court order confirming Purdue's chapter 11 plan. According to the majority, no provision in the Bankruptcy Code other than section 524(g) (which applies only in asbestos chapter 11 cases) authorizes a chapter 11 plan to release the claims of nonconsenting creditors against non-debtor entities, including Purdue's founding Sackler family, absent full satisfaction of such claims.

The aftermath has been a flurry of court rulings, principally from bankruptcy courts (with one notable exception in the Purdue chapter 11 case itself), interpreting and applying the Supreme Court's decision. For example: 

• State of Maryland v. Purdue Pharma LP (In re Purdue Pharma LP), 2024 WL 4894349 (S.D.N.Y. Nov. 26, 2024) (upholding a preliminary injunction barring suits against non-debtors originally issued soon after Purdue's 2019 chapter 11 filing and extended approximately 40 times over five years, and concluding that the Supreme Court's holding in Purdue was "narrow" and banned only nonconsensual releases protecting non-debtors, but "otherwise left unchanged the Bankruptcy Court's power");
• In re Lavie Care Centers, LLC, 2024 WL 4988600, at *11 (Bankr. N.D. Ga. Dec. 5, 2024) ("The question before the Court is whether this opt-out mechanism creates a consensual release, as the Debtors contend, or a nonconsensual release that is foreclosed by Purdue, supra, as the U.S. Trustee asserts. No one has cited, nor has this Court found, any circuit level decisions addressing the issue of whether an opt-out mechanism renders a third-party release consensual, but many cases at the bankruptcy court level address the issue. Together with Purdue they confirm that consensual releases are permitted in bankruptcy plans. And, contrary to the few cases cited by the U.S. Trustee, an overwhelming majority of cases find that a creditor's vote to accept a plan containing a third-party release (like the Plan) makes the release consensual, and this Court agrees.");
• In re Diocese of Buffalo, N.Y., 663 B.R. 197 (Bankr. W.D.N.Y. 2024) (holding that any further temporary blanket stay of actions against chapter 11 debtor parishes and affiliated entities to recover damages for alleged sexual abuse was not permitted under Purdue, especially where many of the outstanding lawsuits against parishes and affiliates were already stayed and the debtor could bring a contempt motion in the event of a stay violation);
• In re Smallhold Inc., 2024 WL 4296938 (Bankr. D. Del. Sept. 25, 2024) (ruling that a non-debtor release in a chapter 11 plan was consensual and that a creditor would be bound by the release if the creditor voted on the plan but did not opt out, but that a creditor that did not vote would not be bound);
• In re Robertshaw US Holding Corp., 662 B.R. 300 (Bankr. S.D. Tex. 2024) (concluding that Purdue did not change prevailing Fifth Circuit law and holding that consensual third-party releases in a liquidating chapter 11 plan were appropriate and afforded affected parties constitutional due process where creditors were given detailed notice about the plan and the plan objection and voting deadlines, ballots gave creditors the opportunity to opt out, the third-party release language was specific enough to put releasing parties on notice of the types of claims released, and the third-party release was an integral part of the plan and a condition of related settlements);
• In re Parlement Technologies, Inc., 661 B.R. 722 (Bankr. D. Del. 2024) (the rule that non-debtors may not receive permanent injunctive relief in the form of a third-party release under a chapter 11 plan, even when the court finds that the release is necessary to facilitate the debtor's reorganization, does not preclude the entry of a preliminary injunction, but "success on the merits" cannot be based on the likelihood that the non-debtor would be entitled to a nonconsensual third-party release through the plan process); and
• Coast to Coast Leasing LLC v. M&T Equipment Finance Corp. (In re Coast to Coast Leasing LLC), 661 B.R. 621 (Bankr. N.D. Ill. 2024) (Purdue did not preclude the entry of a temporary restraining order enjoining creditors from bringing claims against non-debtor guarantors whose efforts to fund the debtor's chapter 11 plan and reorganize successfully could be jeopardized in the absence of a temporary stay). 

Position Enhancement (Uptier) Transactions. In In re Serta Simmons Bedding, LLC, No. 23-20181, 2024 WL 5250365 (5th Cir. Dec. 31, 2024), as revised, No. 23-20181 (5th Cir. Jan. 21, 2025), the U.S. Court of Appeals for the Fifth Circuit reversed and vacated in part a bankruptcy court order confirming the chapter 11 plan of mattress manufacturer Serta Simmons Bedding, LLC, as well as related judgments to the extent that the plan included a provision indemnifying certain lenders in connection with a 2020 "uptier," or "position enhancement," transaction whereby Serta issued new debt secured by a priming lien on its assets and purchased its existing debt from participating lenders at a discount with a portion of the proceeds, which lenders excluded from the exchange argued was in violation of the terms of Serta's 2016 credit agreement. See In re Serta Simmons Bedding, LLC, 2023 WL 3855820 (Bankr. S.D. Tex. June 6, 2023), rev'd in part and remanded, 2024 WL 5250365 (5th Cir. Dec. 31, 2024). The Fifth Circuit also remanded the case to the bankruptcy court for consideration of the excluded lenders' counterclaims. In so ruling, the Fifth Circuit concluded that: (i) the uptier transaction was not a permissible "open market purchase" under the credit agreement; (ii) the doctrine of "equitable mootness" did not bar review of the plan confirmation order even though the plan had been substantially consummated; and (iii) the indemnities relating to the uptier transaction in Serta's chapter 11 plan should be removed because the indemnity claims were disallowed under section 502(e)(1) of the Bankruptcy Code as contingent claims for reimbursement, and the indemnities violated the "equal treatment" requirement in section 1123(a)(4).

Make-Whole Premiums and the Solvent-Debtor Exception. In In re Hertz Corp., 117 F.4th 109 (3d Cir. 2024), as amended, 120 F.4th 1181 (3d Cir. 2024), reh'g denied, Nos. 23-1169 and 23-1170 (3d Cir, Nov. 6, 2024), a divided panel of the U.S. Court of Appeals for the Third Circuit ruled that a bankruptcy court correctly disallowed certain noteholders' claims for a "make-whole premium" payable upon repayment of the notes prior to their stated maturity because it was both "definitionally" and the "economic equivalent" of unmatured interest disallowed under section 502(b)(2) of the Bankruptcy Code. However, because the debtors were solvent, the Third Circuit majority, concluding that the pre-Bankruptcy Code "solvent-debtor exception" survived enactment of the Bankruptcy Code as part of the "fair and equitable" requirement for cramdown-confirmation of a chapter 11 plan, held that the bankruptcy court erred by ruling that the debtors' plan need not pay postpetition interest on the noteholders' claims at the contract rate of interest, while distributing more than $1 billion to existing shareholders in violation of the "absolute priority rule" and the Bankruptcy Code's priority scheme. In so ruling, the Third Circuit became the sixth federal circuit court of appeals to conclude that the solvent-debtor exception is alive and well and requires a solvent debtor to pay postpetition interest to unsecured creditors to render their claims unimpaired under a chapter 11 plan.

Scope of Bankruptcy Discharge. In In re Mallinckrodt PLC, 99 F.4th 617 (3d Cir. 2024), the U.S. Court of Appeals for the Third Circuit ruled that, in the absence of any security, a claim asserted by the seller of intellectual property rights for contingent royalties payable under the sale agreement was a prepetition unsecured claim that was discharged when the bankruptcy court confirmed the debtor-buyer's chapter 11 plan. 

Good-Faith Chapter 11 Filing Requirement. In In re LTL Mgmt. LLC, 2024 WL 3540467 (3d Cir. July 25, 2024), the U.S. Court of Appeals for the Third Circuit affirmed a direct appeal of a bankruptcy court order dismissing the second chapter 11 case filed by a debtor that was an indirect subsidiary of pharmaceutical giant Johnson & Johnson, which manufactured talc-based astringent powder. The debtor was created as part of a Texas two-step corporate restructuring pursuant to which the debtor had assumed responsibility for the manufacturer's talc-related liabilities. In 2023, the Third Circuit had reversed a bankruptcy court order denying motions filed by an official committee of talc claimants to dismiss the debtor's first chapter 11 case, and remanded the case below with instructions to dismiss it. See In re LTL Mgmt., LLC, 64 F.4th 84 (3d Cir. 2023). In both rulings, the Third Circuit concluded that the chapter 11 filings were not made in good faith because, despite its massive talc-related liabilities, the debtor was not in financial distress on the bankruptcy petition date and, therefore, could not show its chapter 11 filing served a "valid bankruptcy purpose." In its 2024 decision, the Third Circuit noted that "[on] the record before us, the 'attenuated' possibility of insolvency far in the future does not offer sufficient financial distress today to justify a Chapter 11 filing." 

On September 20, 2024, Red River Talc LLC filed a prepackaged chapter 11 case in the Southern District of Texas with a chapter 11 plan that, if confirmed, would create an $8 billion settlement fund designed to pay asbestos claims over 25 years. On October 21, 2024, the Office of the U.S. Trustee filed a motion to dismiss Red River Talc's chapter 11 case as having been filed in bad faith. 

Jones Day represented LTL Management, LLC in its bankruptcy cases and currently represents Red River Talc LLC in its chapter 11 case.

In In re Bestwall LLC, 658 B.R. 348 (Bankr. W.D.N.C. 2024), the U.S. Bankruptcy Court for the Western District of North Carolina denied motions to dismiss an asbestos chapter 11 case, ruling that a lack of financial distress did not on constitutional grounds require the dismissal of a chapter 11 case filed by a company that assumed its corporate parent's mass tort liabilities as part of a 2017 Texas Two-Step divisional merger. The court previously denied two other motions to dismiss the case as having been filed in bad faith, the ruling in one of which had been appealed to a district court. In its 2024 ruling, the bankruptcy court ruled that: (i) the law of the case precluded the court from revisiting its prior dismissal opinions where the court found no lack of good faith; (ii) it had no power to revisit good faith because the issue remained on appeal; and (iii) there are "no provisions in the Bankruptcy Code evidencing a congressional intent to impose a jurisdictional insolvency or 'financial distress' requirement to file bankruptcy." 

Jones Day represents Bestwall LLC in its chapter 11 case. 

Derivative Standing to Assert Bankruptcy Estate's Cause of Action. The practice of conferring "derivative standing" on official creditors' committees or individual creditors to assert claims on behalf of a bankruptcy estate in cases where the debtor or a bankruptcy trustee is unwilling or unable to do so is well-established. However, until recently, Delaware bankruptcy courts have uniformly limited the practice in cases where applicable non-bankruptcy law provides that creditors do not have standing to bring claims on behalf of certain entities. The U.S. Bankruptcy Court for the District of Delaware broke ranks on this issue in In re Pack Liquidating, LLC, 658 B.R. 305 (Bankr. D. Del. 2024). The court ruled that state law cannot prevent a creditors' committee from being conferred with standing to prosecute claims on behalf of a bankruptcy estate if otherwise appropriate under the Bankruptcy Code. It also held that any state law purporting to abridge the power of a bankruptcy court to confer derivative standing upon a committee or creditor in an appropriate case is preempted. The court accordingly granted the motion of a creditor's committee to prosecute estate breach of fiduciary claims despite a provision in Delaware law limiting derivative standing to the members or assignees of a Delaware limited liability company. 

In In re Purdue Pharma L.P., 2024 WL 4820476 (Bankr. S.D.N.Y. Nov. 18, 2024), the U.S. Bankruptcy Court for the Southern District of New York granted an official unsecured creditors' committee's motion—supported by a chapter 11 debtor that is a Delaware limited liability company—for derivative standing to bring estate claims against the debtor's owners, officers, and directors. In so ruling, the court agreed with the reasoning in Pack Liquidating and an earlier unpublished decision handed down by another Southern District of New York bankruptcy judge in the chapter 11 case of newspaper publisher The McClatchy Co. See In re The McClatchy Co., No. 20-10418 (Bankr. S.D.N.Y. July 6, 2020) (transcript of hearing—doc. no. 641) (rejecting the argument that Delaware law prevents a bankruptcy court from conferring standing on a committee to bring derivative claims on behalf of LLC debtors and ruling that federal bankruptcy law, rather than state law, governed a committee's request for derivative standing because the committee sought to bring claims that became property of the bankruptcy estate on the petition date). 

In In re X-Treme Bullets, Inc., 2024 WL 837043 (9th Cir. Feb. 28. 2024), the U.S. Court of Appeals for the Ninth Circuit ruled that a bankruptcy court did not err in conferring a creditors' committee with derivative standing to avoid pre-bankruptcy transfers made by the debtor. According to the Ninth Circuit, "[a]lthough the Bankruptcy Code contains no explicit authorization for the initiation of an adversary proceeding by a creditors' committee, a qualified implied authorization exists under 11 U.S.C. § 1103(c)(5)," which provides that an official committee may "perform such other services as are in the interest of those represented." The court also held that the committee was not required to establish constitutional standing because it was filing suit on behalf of the bankruptcy estate. 

Appointment of a Chapter 11 Examiner. The Bankruptcy Code provides that, in chapter 11 cases where the court does not find "cause" for the appointment of a trustee, the court "shall" appoint an examiner, upon a request from the Office of the U.S. Trustee or any party-in-interest prior to confirmation of a chapter 11 plan, to investigate the debtor's affairs or allegations of management misconduct, if either: (i) the court determines that the appointment would be in the best interests of stakeholders and the estate; or (ii) the debtor has qualifying unsecured debt exceeding $5 million. 

The U.S. Court of Appeals for the Third Circuit addressed this issue as a matter of first impression in In re FTX Trading Ltd., 91 F.4th 148 (3d Cir. 2024). The Third Circuit reversed a bankruptcy court order denying a motion by the U.S. Trustee to appoint an examiner in a cryptocurrency chapter 11 case to investigate allegations of pre-bankruptcy manager misconduct even though the debtor's unsecured debt far exceeded the $5 million threshold. In so ruling, the Third Circuit joined the Sixth Circuit in concluding that the appointment of an examiner is such cases is mandatory when requested by the U.S. Trustee or a party-in-interest, and that the bankruptcy court's discretion is limited to defining the scope of the examiner's investigation. 

Sale of Bankruptcy Estate Avoidance Claims. A debtor's non-exempt assets (and even the debtor's entire business) are commonly sold during the course of a bankruptcy case by the trustee or a chapter 11 debtor-in-possession ("DIP") as a means of augmenting the bankruptcy estate for the benefit of stakeholders or to fund distributions under, or implement, a chapter 11, 12, or 13 plan. However, it is less well understood that causes of action that become part of the bankruptcy estate in connection with a bankruptcy case (e.g., fraudulent transfer, preference, or other litigation claims) may also be sold or assigned by a trustee or DIP during bankruptcy to generate value. The U.S. Court of Appeals for the Fifth Circuit considered this question in Matter of South Coast Supply Co., 91 F.4th 376 (5th Cir. 2024). The court of appeals joined the Eighth and Ninth Circuits in concluding that avoidance actions (in this case, a preference claim) are property of the estate that can be sold to creditors as a means of generating value. 

Revocation of Chapter 11 Plan Confirmation Orders. Confirmation of a chapter 11 plan providing for the reorganization or liquidation of a debtor is the culmination of the chapter 11 process. To promote the fundamental policy of finality in that process, the general rule is that a final confirmation order is inviolable. The absence of certainty that the transactions effectuated under a plan are valid and permanent would undermine chapter 11's fundamental purpose as a vehicle for rehabilitating ailing enterprises and providing debtors with a fresh start. The importance of finality in this context was the subject of a ruling handed down by the U.S. Bankruptcy Court for the District of Delaware. In In re Virgin Orbit, L.L.C., 659 B.R. 36 (Bankr. D. Del. 2024), the court denied a request by certain equity holders to revoke an order confirming a chapter 11 plan that canceled their equity interests while allocating nearly all of the proceeds generated from a bankruptcy auction sale of the debtors' assets to an insider secured lender as part of a global settlement. According to the court, absent any evidence that the debtors made materially false statements or otherwise procured the confirmation order by fraud, the equity holders failed to satisfy the high bar for revocation. 

Safe Harbor Precluding Avoidance of Securities Contract Transfers. Section 546(e) of the Bankruptcy Code's "safe harbor" preventing avoidance in bankruptcy of certain securities, commodity, or forward-contract payments has long been a magnet for controversy. Several noteworthy court rulings have been issued in bankruptcy cases addressing the scope of the provision, including its limitation to transactions involving "financial institutions" as transferors or transferees, its preemption of avoidance litigation that could have been commenced by or on behalf of creditors under applicable non-bankruptcy law, and its application to non-public transactions. 

In Petr v. BMO Harris Bank N.A., 95 F.4th 1090 (7th Cir. 2024), the U.S. Court of Appeals for the Seventh Circuit affirmed a district court ruling broadly construing the section 546(e) safe harbor to bar a chapter 7 trustee from suing under state law and section 544 of the Bankruptcy Code to avoid an alleged constructively fraudulent transfer made by the debtor shortly after it had been acquired in a leveraged buyout. Among other things, the Seventh Circuit agreed with the district court's conclusions that: (i) the safe harbor is not limited to transfers involving publicly traded securities; and (ii) section 546(e) preempted the trustee's claim to recover the value of the transfer under section 544 and state law. 

In In re Boston Generating, LLC, 2024 WL 4234886 (2nd Cir. Sept. 19, 2024), the U.S. Court of Appeals for the Second Circuit in an unpublished opinion affirmed lower court rulings that payments made as part of a pre-bankruptcy recapitalization transaction were shielded from avoidance under the safe harbor because they were made through an agent bank that qualified as a "financial institution." That conclusion meant that its customers, including the debtor-transferee, were also financial institutions, an outcome consistent with the U.S. Supreme Court's analysis in Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 583 U.S. 366 (2018).

Cross-Border Bankruptcy Cases. Courts disagree over whether a foreign bankruptcy case can be recognized under chapter 15 of the Bankruptcy Code if the foreign debtor does not reside or have assets or a place of business in the United States. In 2013, the U.S. Court of Appeals for the Second Circuit staked out its position on this issue in Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), 737 F.3d 238 (2d Cir. 2013), ruling that the provision of the Bankruptcy Code requiring U.S. residency, assets, or a place of business applies in chapter 15 cases as well as cases filed under other chapters. 

The U.S. Court of Appeals for the Eleventh Circuit split with the Second Circuit on this controversial issue in In re Al Zawawi, 97 F.4th 1244 (11th Cir. 2024). Distancing itself from Barnet based on Eleventh Circuit precedent pre-dating the enactment of chapter 15, the Eleventh Circuit affirmed a district court ruling that chapter 15 has its own eligibility requirements, and that the eligibility requirements for debtors in cases under other chapters of the Bankruptcy Code do not apply in chapter 15 cases. 

In In re Goli Nutrition Inc., 2024 WL 1748460 (Bankr. D. Del. Apr. 23, 2024), the U.S. Bankruptcy Court for the District of Delaware: (i) denied the motion of foreign representative for a chapter 15 debtor under section 363(b) of the Bankruptcy Code to approve a "reverse vesting transaction" authorized by a Canadian bankruptcy court involving a transfer of the foreign debtor's stock to a successor entity because the transaction did not involve a use, sale, or lease of the debtor's property; and (ii) held in abeyance the foreign representative's companion motion to approve a non-ordinary course "free and clear" sale of certain equipment located in California pending resolution of a dispute over the ownership of the equipment. In so ruling, the U.S. bankruptcy court concluded that the propriety of a sale of a foreign debtor's U.S. assets in a chapter 15 case must be assessed according to the standard applied to such sales under section 363(b) of the Bankruptcy Code. The court also determined that the ownership dispute had to be resolved before it could approve the sale, but not necessarily by a U.S. bankruptcy court, and it was appropriate in this case to allow the Canadian court determine the owner of the assets. 

In In re Wayne Burt Pte. Ltd. (In Liquidation), 2024 WL 5003229 (Bankr. D.N.J. Dec. 6, 2024), the U.S. Bankruptcy Court for the District of New Jersey, having previously recognized a Singapore corporation's liquidation proceeding under chapter 15 of the Bankruptcy Code, granted the foreign representative's motion for recognition and enforcement under a Singapore court's order directing a U.S.-based creditor to surrender certain stock pledged by the debtor to secure a loan. The creditor opposed the motion, arguing that the U.S. bankruptcy court—rather than the Singapore court—should determine whether the stock should be turned over to the foreign representative. The bankruptcy court rejected this argument in accordance with the provisions and objectives of chapter 15 as well as the principle of adjudicative comity. According to the court, "[a]t the heart of the opposition to the relief sought by the Foreign Representative is an unacceptable premise that this Court should, in effect, stand in appellate review of the rulings made by the Singapore High Court." This argument, the bankruptcy court wrote, "patently conflicts with principles of comity and the underlying objectives of Chapter 15," especially where the objecting creditor retains the ability to pursue appeals and other appropriate relief in the foreign court. 

Jones Day represented the foreign representative of Wayne Burt Pte. Ltd. in its chapter 15 case.  

Validity of Lock-Up or Plan Support Agreements in Chapter 11 Cases. A bedrock principle underlying chapter 11 of the Bankruptcy Code is that creditors, shareholders, and other stakeholders should be provided with adequate information to make an informed decision to either accept or reject a chapter 11 plan. For this reason, the Bankruptcy Code provides that any "solicitation" of votes for or against a plan must be preceded or accompanied by stakeholders' receipt of a "disclosure statement" approved by the bankruptcy court explaining the background of the case as well as the key provisions of the chapter 11 plan. The votes of stakeholders whose votes are solicited outside of this process, and therefore improperly, may be disallowed.  

However, to promote communication and negotiation among the debtor and other stakeholders throughout the course of a chapter 11 case, courts generally construe the term "solicitation"—and the remedies for improper solicitation—narrowly. In some cases, courts have even permitted debtors and certain stakeholders to enter into agreements prior to the approval of a disclosure statement in which the signatories agree to support a plan under certain specified conditions.  

The U.S. Bankruptcy Court for the Southern District of New York addressed the propriety of such agreements in In re GOL Linhas Aéreas Inteligentes S.A., 659 B.R. 641 (Bankr. S.D.N.Y. 2024). The court approved a global settlement among the chapter 11 debtors and various aircraft lessors but denied approval of an impermissible "lockup" provision in the settlement agreements obligating the counterparties to support any chapter 11 plan later filed by the debtors provided the plan embodied the terms of the settlement. Although the bankruptcy court declined to adopt a "bright-line" prohibition of such agreements in all cases, it emphasized that the Bankruptcy Code's disclosure and vote solicitation requirements are paramount. It also concluded that the lockup provision before the court failed to pass muster because, unlike most typical lockup, "plan support," or "restructuring support" agreements, it did not specify the terms of a proposed chapter 11 plan, but merely the terms of the proposed settlement, together with a requirement that any plan could not be inconsistent with those settlement terms. 

Standing to Be Heard in Chapter 11 Cases. In Truck Insurance Exchange v. Kaiser Gypsum Co., __ U.S. __, 144 S. Ct. 1414 (2024), the U.S. Supreme Court ruled that an insurer with "financial responsibility for bankruptcy claims" based on asbestos exposure is a "party in interest" that can raise objections to its insureds' chapter 11 plan, which created a trust for the payment of the uninsured claims of asbestos injury plaintiffs, because the insurer "can be directly affected by the reorganization proceedings in myriad ways." According to the unanimous Court, the Bankruptcy Code provision—11 U.S.C. § 1109(b)—that gives every "party in interest" the right to be heard "on any issue" in a chapter 11 case "asks whether the reorganization proceedings might directly affect a prospective party, not how a particular reorganization plan actually affects that party." Section 1109(b) of the Bankruptcy Code, the Court wrote, "grants insurers neither a vote nor a veto; it simply provides them a voice in the proceedings." 

Jones Day represented debtors Kaiser Gypsum Company, Inc. and Hanson Permanente Inc. in the proceedings before the Supreme Court.  

Administrative Fee in Chapter 11 Cases. In Office of United States Trustee v. John Q. Hammons Fall 2006, LLC, ___, U.S.___ 144 S. Ct. 1588 (2024), the U.S. Supreme Court held that debtors who paid non-uniform bankruptcy fees paid under a 2017 amendment to 28 U.S.C. § 1930(a)(6) that was later determined to be unconstitutional were entitled to prospective relief only, and were not entitled to a refund of the unconstitutional fees. The decision answered the remedy question the Court explicitly left unresolved when it unanimously found the amendment unconstitutional in Siegel v. Fitzgerald, 596 U.S. 464 (2022). 

Jones Day appeared as amicus curiae in Siegel and Hammons before the Supreme Court. 

Regulatory and Legislative Developments in 2024 

Several pieces of bankruptcy legislation were proposed in 2024 during the 118th Congress, but none was enacted into law before the end of the year (and may be reintroduced in the 119th Congress beginning in January 2025), including: 

The "Nondebtor Release Prohibition Act of 2024" (S.5415), which would have: (i) invalidated any chapter 11 bankruptcy filing for a company that, in the 10 years leading up to a filing, employed a Texas Two-Step-like legal maneuver in which a company uses state law to divide its assets and liabilities in a "divisional merger" and then place the unit laden with liabilities into bankruptcy; (ii) prohibit nonconsensual third-party releases in chapter 11 plans, codifying what the U.S. Supreme Court banned in Harrington, United States Trustee, Region 2 v. Purdue Pharma L.P., ___ U.S. ___, 144 S. Ct. 2071 (2024). 

The "Ending Corporate Bankruptcy Abuse Act of 2024" (H.R. 9110 and S.4746), which would have made the "objectively futile" or bad faith filing of a chapter 11 petition "cause" for dismissal of the case. The bill would also have established a rebuttable presumption that a petition was filed, or that a case was continuing, in subjective bad faith if the court determined that the debtor manufactured the venue for the case. A conclusive presumption of bad faith warranting dismissal would have applied if, among other things, the bankruptcy court determined that: (i) the purpose of the bankruptcy filing was to gain a tactical litigation advantage, impose undue delay upon creditors, or impermissibly cap the debtor's liabilities; (ii) the debtor was the subject of a Texas Two-Step or similar transaction changing the corporate structure of and affecting the financial condition of the debtor during the four-year period prior to filing for bankruptcy; (iii) during the four-year period preceding the petition date, the debtor transferred substantial assets to or for the benefit of, or incurred substantial obligations from or for the benefit of, any insider or affiliate that is avoidable as a fraudulent transfer; or (iv) the debtor did not have a valid reorganizational purpose. The bill would also have prohibited stays of actions against certain non-debtors. 

The "Protecting Employees and Retirees in Business Bankruptcies Act of 2024" (S.5433), which would have amended various provisions of the Bankruptcy Code, including sections 502, 503, 507, 1113, 1114, and 1129, to improve protections for employees and retirees in business bankruptcies by, among other things: (i) increasing the maximum value of employee wage claims entitled to priority payment; (ii) tightening the conditions under which collective bargaining agreements can be rejected in bankruptcy; (iii) toughening the procedures for reducing or eliminating retiree benefits; (iv) raising the threshold for obtaining court approval for executive bonuses and other payouts to senior executives (among others); (v) ensuring that company insiders cannot retain their retirement or health benefit plans if rank-and-file workers have lost their benefits through the bankruptcy process; and (vi) clarifying that the principal purpose of chapter 11 is to preserve jobs and economically productive activity to the greatest extent possible. 

The "Bankruptcy Threshold Adjustment Extension Act" (S.4150), which would have extended the sunset period for the Bankruptcy Threshold Adjustment and Technical Corrections Act, Pub. L. No. 117–151 (June 21, 2022), which, among other things, increased the debt threshold for small business debtors under subchapter V of chapter 11. 

The "Stop Helping Outcome Preferences Act" or "SHOP Act" (S.4095), which would have, among other things, limited the authority of district courts to provide certain nationwide injunctive relief, prevent forum or judge shopping, and modify the venue requirements for a bankruptcy filing to prevent forum shopping. 

Certain changes to the Federal Rules of Bankruptcy Procedure and Forms took effect on December 1, 2024. A list of the changes is available here.

Read the full Business Restructuring Review.