Business Restructuring Review | September–October 2020

In This Issue:

FERC v. Bankruptcy Court Turf War Update

Court rulings to date on the jurisdictional turf war between FERC and the bankruptcy courts have been a mixed bag. FERC's position on the question has evolved—the commission's current view is that it and the bankruptcy courts have concurrent jurisdiction to determine whether FERC-regulated agreements can be rejected in bankruptcy. Here, we offer a brief discussion of what is likely to remain a disputed issue for some time, especially given the recent spike in oil and gas company bankruptcies. [read more …]

Claims Traders Alert: Another Bankruptcy Court Rules that a Traded Claim Can Be Disallowed if the Seller Received a Voidable Transfer

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. In In 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." [read more …]

Legislative Update: Enactment of the UK Corporate Insolvency and Governance Act

On June 25, 2020, the new UK Corporate Insolvency and Governance Act ("Act") became law after it was given Royal Assent by Queen Elizabeth II. The changes introduced by the Act will have a significant impact on the future direction of the UK restructuring market. [read more …]

"Flip Clause" Payments to Lehman Brothers Noteholders After Termination of Swap Agreement Safe Harbored in Bankruptcy

In In re Lehman Bros. Holdings Inc., 2020 WL 4590247 (2d Cir. Aug. 11, 2020), the U.S. Court of Appeals for the Second Circuit affirmed lower court rulings that the Bankruptcy Code's safe harbor for the liquidation of swap agreements prevented a debtor from recovering payments made to certain noteholders in accordance with a priority-altering "flip clause" in agreements governing a collateralized debt obligation transaction. According to the court of appeals, even if the provisions were "ipso facto" clauses that are generally invalid in bankruptcy in other contexts, section 560 of the Bankruptcy Code creates an exception to this rule in connection with the liquidation of swap agreements. [read more …]

Matalan: (Some) Additional Clarity on the Impact of English Schemes and Chapter 15 on CDS

On August 11, 2020, a Credit Derivatives Determinations Committee for EMEA ("DC") unanimously determined that the chapter 15 filing by British retailer Matalan triggered a Bankruptcy Credit Event under standard credit default swaps ("CDS"). The DC's decision diverged from its only prior decision (involving Thomas Cook) on whether a chapter 15 petition constituted a Bankruptcy Credit Event. The DC statements accompanying the Thomas Cook and Matalan determinations provide useful guidance regarding the factors the DC will consider in determining whether a chapter 15 petition and, to a lesser degree, an English scheme constitutes a Bankruptcy Credit Event. [read more …]

Cram-Up Chapter 11 Plans: Reinstatement and Indubitable Equivalence

A brief discussion of the mechanics of "cram-up" chapter 11 plans, which typically are plans that are accepted by junior creditors and then are "crammed up" to bind objecting senior creditors. Such plans generally provide for either: (i) reinstatement of an objecting secured creditor's claim according to its original terms after curing most defaults—thereby rendering the claim "unimpaired" and depriving the secured creditor of the right to vote on the plan; or (ii) the secured creditor's realization of the "indubitable equivalent" of its claim, which can include reinstatement of its debt secured by substitute collateral or abandonment of the collateral to the creditor (referred to in some cases as "dirt for debt"). [read more …]

Delaware Bankruptcy Court Rules that Bankruptcy Blocking Right in Debtor's Corporate Charter Violates Federal Public Policy

The Delaware bankruptcy court overseeing the chapter 11 cases of Pace Industries, LLC and affiliates denied on public policy grounds a motion to dismiss the cases filed by a preferred stockholder on the basis that the debtor group's parent corporation failed to obtain the preferred stockholder's written consent to any bankruptcy filing, which was required in the parent's certificate of incorporation. The court acknowledged that "there is no case directly on point, holding that a blocking right by a shareholder who is not a creditor is void as contrary to federal public policy that favors the constitutional right to file bankruptcy." Even so, the court stated, "based on the facts of this case, [the court is] prepared to be the first court to do so." [read more …]

Creditors' Committee Denied Standing to Bring Derivative Claims on Behalf of LLC Debtor in Bankruptcy

In In re Dura Automotive Systems, LLC, No. 19-12378 (KBO) (Bankr. D. Del. June 9, 2020) (unpublished bench ruling), the U.S. Bankruptcy Court for the District of Delaware ruled that an official creditors' committee could not be granted standing to prosecute claims against Dura's prepetition lenders because Delaware's limited liability company ("LLC") law restricts standing to prosecute actions on behalf of an LLC to its members and their assigns. [read more …]


An article written by Corinne Ball (New York) and George J. Cahill (New York) entitled "Matalan: Enforcing English Schemes in the U.S. Under Chapter 15 on Credit Default Swaps" was published in the August 26, 2020, issue of the New York Law Journal.

Corinne Ball (New York), Bruce Bennett (Los Angeles and New York), Carl E. Black (Cleveland), Jeffrey B. Ellman (Atlanta), Brad B. Erens (Chicago), Gregory M. Gordon (Dallas), Heather Lennox (Cleveland and New York), Joshua M. Mester (Los Angeles), Charles M. Oellermann (Columbus), and Kevyn D. Orr (Washington) were among the 2020 Lawdragon 500 "Leading U.S. Bankruptcy & Restructuring Lawyers."

An article written by Geoffrey S. Stewart (Global Disputes; Washington), Victoria Dorfman (Washington), and Gabrielle E. Pritsker (Business & Tort Litigation; Washington) entitled "Valuing Litigation in Bankruptcy: The Use of Expert Witnesses to Testify About the Merits and Value of Litigation Claims" was published in the Winter 2020 issue of the American Bankruptcy Law Journal.

Carl E. Black (Cleveland) was named a "Lawyer of the Year" in the field of Litigation—Bankruptcy in The Best Lawyers in America (2021).

Thomas M. Wearsch (Cleveland), T. Daniel Reynolds (Cleveland), Timothy W. Hoffmann (Chicago), Robert W. Hamilton (Columbus), Genna Ghaul (New York), and Marissa Alfano (Cleveland) are representing global auto parts manufacturer Shiloh Industries, Inc. and its affiliates in chapter 11 cases filed by the companies on August 30, 2020, in the U.S. Bankruptcy Court for the District of Delaware.

Bruce Bennett (Los Angeles and New York), Corinne Ball (New York), Gregory M. Gordon (Dallas), Heather Lennox (Cleveland and New York), and Kevyn D. Orr (Washington) were among the 2020 Lawdragon 500 "Global Bankruptcy & Restructuring Lawyers."

Thomas A. Wilson (Cleveland), Danielle Barav-Johnson (Atlanta), Jeffrey B. Ellman (Atlanta), Kevyn D. Orr (Washington), Thomas M. Wearsch (Cleveland), Caitlin K. Cahow (Chicago), Danielle D. Donovan (Atlanta), Joshua K. Brody (New York), Oliver S. Zeltner (Cleveland), James O. Johnston (Los Angeles), Jonathan Noble Edel (Cleveland), Aldo L. LaFiandra (Atlanta and New York), Heather Lennox (Cleveland and New York), T. Daniel Reynolds (Cleveland), Gregory M. Gordon (Dallas), Corinne Ball (New York), Carl E. Black (Cleveland), Bruce Bennett (Los Angeles and New York), and Brad B. Erens (Chicago) were recognized in The Best Lawyers in America (2021) in the fields of Bankruptcy and Creditor Debtor Rights/Insolvency and Reorganization Law and/or Litigation—Bankruptcy.

An article written by Charles M. Oellermann (Columbus) and Mark G. Douglas (New York) entitled "Expanding the Scope of the Bankruptcy Safe Harbor for Securities Transactions" was published in Lexis Practice Advisor on August 12, 2020.

An article written by Stacey L. Corr-Irvine (New York) and Mark G. Douglas (New York) entitled "Oversecured Creditor's Right to Contractual Default-Rate Interest Allowed under State Law" was published on August 10, 2020, in Lexis Practice Advisor.

An article written by Charles M. Oellermann (Columbus) and Mark G. Douglas (New York) entitled "Force Majeure Clause Triggered by Pandemic Shutdown Order Partially Relieves Chapter 11 Debtor from Timely Paying Postpetition Rent" was published on August 6, 2020, in Lexis Practice Advisor.

An article written by Paul M. Green (Houston) and Mark G. Douglas (New York) entitled "Secured creditor's net economic damages estimate of disputed claims plainly insufficient to establish collateral value" was published in the August 28, 2020, edition of the International Law Office Newsletter.

An article written by Dan T. Moss (Washington) and Mark G. Douglas (New York) entitled "Eighth Circuit Rules That Bankruptcy Code's Cap on Lease Damage Claims Applies to Fraudulent Transfer Judgment" was published on August 10, 2020, in Lexis Practice Advisor

An article written by Charles M. Oellermann (Columbus) and Mark G. Douglas (New York) entitled "Structuring LBO Payments After NY Ch. 11 Ruling" was published in the August 13, 2020, edition of Law360.

An article written by Marissa Alfano (Cleveland) and Mark G. Douglas (New York) entitled "Another bankruptcy court joins majority camp on post-plan confirmation set-off" was published in the August 21, 2020, edition of the International Law Office Newsletter.

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