Business Restructuring Review Vol. 23 No. 4 | July–August 2024
In This Issue:
U.S. Supreme Court Bankruptcy Update
The U.S. Supreme Court handed down three bankruptcy rulings to finish the current Term. The decisions address the validity of nonconsensual third-party releases in chapter 11 plans, the standing of insurance companies to object to "insurance neutral" chapter 11 plans, and the remedy for overpayment of administrative fees in chapter 11 cases to the Office of the U.S. Trustee. [Read more …]
Ohio Bankruptcy Court Offers Guidance on (the Amended) Ordinary Course Payment Preference Defense
In In re ASPC Corp., 658 B.R. 455 (Bankr. S.D. Ohio 2024), the U.S. Bankruptcy Court for the Southern District of Ohio addressed a preference defendant's burden of proof under the amended section of the Bankruptcy Code shielding from avoidance transfers made to pay debts incurred in the ordinary course of business of the debtor and the transferee. The court granted summary judgment to a creditor in avoidance litigation, ruling that the defendant need only demonstrate that the payment satisfied one—but not both—of the tests stated in section 547(c)(2). According to the bankruptcy court, "[t]his case illustrates the importance of [the 2005 amendment's] replacement of the conjunctive 'and' with the disjunctive 'or' between the subjective and objective tests for the ordinary course of business defense." [Read more …]
First Impressions: Seventh Circuit Rules that the Bankruptcy Code's "Safe Harbor" for Securities Contracts Transfers Applies to Non-Public Securities
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. One of the latest chapters in the ongoing debate was written by the U.S. Court of Appeals for the Seventh Circuit in Petr v. BMO Harris Bank N.A., 95 F.4th 1090 (7th Cir. 2024). 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 buy-out. 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. [Read more …]
Third Circuit: Unsecured Claim for Royalties from Intellectual Property Purchased by Debtor Discharged Under Chapter 11 Plan
Mitigating risk of loss associated with a bankruptcy filing should be an element of any commercial transaction, especially if it involves a sale or license of intellectual property rights. A ruling recently handed down by the U.S. Court of Appeals for the Third Circuit provides a stark reminder of the consequences of when it is not. In In re Mallinckrodt PLC, 99 F.4th 617 (3d Cir. 2024), the Third Circuit ruled that, in the absence of any security, a claim asserted by the seller of intellectual property rights for 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. [Read more …]
Circuit Split: Eleventh Circuit and Second Circuit Disagree on Eligibility Requirements for Chapter 15 Debtors
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, 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. [Read more …]
New York Bankruptcy Court: Lockup Provision in Proposed Settlement Agreement Violated Bankruptcy Code's Disclosure and Solicitation Requirements
The U.S. Bankruptcy Court for the Southern District of New York addressed the propriety of restructuring support, plan support, or lockup agreements in In re GOL Linhas Aéreas Inteligentes S.A., 2024 WL 1716490 (Bankr. S.D.N.Y. Apr. 22, 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. The court also concluded that the lockup provision before it failed to pass muster because, unlike most typical lockup or "plan support agreements" or "restructuring support agreements," the provision 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. [Read more …]
Newsworthy:
Heather Lennox (Cleveland/New York), Bruce Bennett (Los Angeles), Kevyn D. Orr (Washington), Gregory M. Gordon (Dallas), Carl E. Black (Cleveland), Daniel J. Merrett (Atlanta), Robert W. Hamilton (Columbus), Corinne Ball (New York), Gary L. Kaplan (Miami), Thomas M. Wearsch (New York/Cleveland), Brad B. Erens (Chicago), Jeffrey B. Ellman (Atlanta), and Dan T. Moss (Washington/New York) were recognized as leading lawyers in the area of Bankruptcy/Restructuring in the 2024 edition of Chambers USA. Bruce Bennett and Gregory M. Gordon received a "Band 1" designation. Heather Lennox was ranked as a "Star Individual." Corinne Ball was designated a "Senior Statesperson."
Thomas M. Wearsch (New York/Cleveland) spoke on a panel discussing "International Restructuring in the Automotive Sector" on June 4, 2024, at the International Bar Association Annual Meeting in Zurich, Switzerland.
Dr. Olaf Benning (Frankfurt), Markus Ledwina (Frankfurt), and Alexander Ballmann (Munich) were recognized as leading lawyers by The Best Lawyers in Germany™ 2025 in the practice area Restructuring and Insolvency Law.
On June 10, 2024, Dan T. Moss (Washington/New York) was on a panel discussing "Insolvency Proceedings Without Solvency?" at the 24th Annual International Insolvency Conference in Singapore.
An article written by Daniel J. Merrett (Atlanta) titled "New York Bankruptcy Court: Setoff and Unjust Enrichment Cannot Be Asserted as Affirmative Defenses in Bankruptcy Avoidance Litigation" was posted on June 11, 2024, on the Harvard Law School Bankruptcy Roundtable.
On May 17, 2024, the U.S. Bankruptcy Court for the District of Delaware recognized and enforced a restructuring plan for Spark Networks SE ("Spark") under chapter 15 of the Bankruptcy Code, marking the first such order for a plan formulated under Germany's Corporate Stabilization and Restructuring Act ("StaRUG"). Dating platformer provider Spark received approval for its StaRUG plan from a German court in January and successfully defended an appeal by certain shareholders in April. Introduced in January 2021, StaRUG allows companies to impose a compromise or arrangement, including a restructuring of liabilities, upon all or a subset of the creditors. The plan waives more than $30 million of secured debt and $13 million of unsecured debt, and provides approximately $24 million in liquidity support. The Jones Day professionals advising Spark included Dan T. Moss (Washington/New York), Olaf Benning (Frankfurt), David S. Torborg (Washington), Colleen E. Laduzinski (Boston/New York), Ryan Sims (Washington), S. Christopher Cundra IV (Washington), Nick Buchta (Cleveland), Richard H. Howell (Washington), Elizabeth A. Dengler (Boston), and Alexandra Levay (Boston).
An article written by T. Daniel Reynolds (Cleveland) titled "Fifth Circuit: Recent U.S. Supreme Court Ruling Did Not Alter Mootness Requirements for Unstayed Bankruptcy Sale Orders" was published on June 4, 2024, by Lexis Practical Guidance.
An article written by Dan T. Moss (Washington/New York), Heather Lennox (Cleveland/New York), David S. Torborg (Washington), and Vinay Kurien (Singapore) titled "Third Circuit Updates Its Standard for Granting Comity to Foreign Bankruptcy Proceedings" was published on June 9, 2024, by Lexis Practical Guidance.
An article written by Corinne Ball (New York), David S. Torborg (Washington), and Dan T. Moss (Washington/New York) titled "Delaware Bankruptcy Court: 'Center of Main Interests' for Purposes of Chapter 15 Recognition Must Be Determined on Debtor-by-Debtor Rather than Enterprise Group Basis was published on June 9, 2024, by Lexis Practical Guidance.
An article written by T. Daniel Reynolds (Cleveland) titled "Ability of Creditors' Committees to Prosecute Estate Claims Given a Boost in Delaware Bankruptcy Courts" was published on June 4, 2024, by Lexis Practical Guidance.
Lawyer Spotlight: Fabienne Beuzit
Fabienne Beuzit is a partner in the Paris Office, where she leads the Business Restructuring & Reorganization team. Fabienne focuses on bankruptcy proceedings, court and out-of-court restructurings, distressed M&A matters, and insolvency-related litigation. She guides clients through complex restructuring situations and has represented debtors, lenders, shareholders, and investors in numerous restructurings in France and internationally. She regularly interacts with the dedicated departments of the French Ministry of Economy and Finance Affairs, particularly the Comité Interministériel de Restructuration Industrielle in charge of assisting distressed companies, and liaising with all relevant public bodies dedicated to the companies.
Fabienne's experience also includes setting up strategic carve-out, reorganization, or restructurings of groups and assisting turnaround distressed funds in the sale, acquisition, or investment of distressed equity interests.
According to Chambers Europe, Fabienne has "strong technical expertise coupled with business sense, and dedication at odd hours when the situation commands." France Legal 500 EMEA, which named her among the "Leading Individuals" in France, described Fabienne as a tough negotiator, creative in mastering all aspects of a restructuring case, and "totally dedicated to her clients."
