Business Restructuring Review | July-August 2021
In This Issue:
Chapter 15 Update: U.S. Bankruptcy Court Refuses to Enforce Order Approving Indonesian Debt Restructuring Plan Due to Third-Party Releases
In In re PT Bakrie Telecom TBK, 2021 WL 1439953 (Bankr. S.D.N.Y. Apr. 15, 2021), the U.S. Bankruptcy Court for the Southern District of New York entered an order recognizing an Indonesian "suspension of payments proceeding" under chapter 15 of the Bankruptcy Code. However, the court refused to grant a foreign representative's request for "additional relief" in the form of enforcement of an Indonesian court order approving a restructuring plan because the order included third-party releases (a nonstandard practice under Indonesian law). According to the court, there was "nothing in the record about the justification for any third-party release" or any indication "the foreign court considered the rights of creditors when considering this third-party release." [read more …]
Setoffs Under Shari'a-Compliant Investment Contracts Not Safe Harbored in Bankruptcy
In In re Arcapita Bank B.S.C., 2021 WL 1603608 (Bankr. S.D.N.Y. Apr. 23, 2021), the U.S. Bankruptcy Court for the Southern District of New York addressed the interaction between purported setoff rights arising under investment agreements governed by Islamic law and the Bankruptcy Code's safe harbors protecting the exercise of non-debtors' rights under financial contracts. The court granted summary judgment to a creditors' committee on its claims that two foreign banks invalidly and in violation of the automatic stay exercised setoffs under Islamic Shari'a-compliant investment contracts with a Bahrain-headquartered chapter 11 debtor. In so ruling, the court concluded that the investment contracts were more akin to loans than the kinds of financial contracts that are protected by the Bankruptcy Code's safe harbors. [read more …]
U.S. Bankruptcy Code Tolling Provision Applies in Chapter 15 Case to Extend Deadlines Under Foreign Bankruptcy Law
In In re Bankr. Est. of Norske Skogindustrier ASA, 2021 WL 1687903 (Bankr. S.D.N.Y. Apr. 29, 2021), the U.S. Bankruptcy Court for the Southern District of New York held that a foreign representative in a case under chapter 15 of the Bankruptcy Code can rely on the Bankruptcy Code's statute of limitations tolling provision to extend the deadline under foreign bankruptcy law to commence avoidance litigation. The decision illustrates the increasing extent to which (now 15-year-old) chapter 15 has become an invaluable resource for the representatives of foreign debtors in cross-border bankruptcy cases. [read more …]
Voting Right Assignment Unenforceable, But Subordinated Creditor Lacked Standing to Participate in Chapter 11 Plan Confirmation Process
In In re Fencepost Productions Inc., 2021 WL 1259691 (Bankr. D. Kan. Mar. 31, 2021), the U.S. Bankruptcy Court for the District of Kansas recently addressed the enforceability of a provision in a pre-bankruptcy subordination agreement under which a subordinated creditor assigned to a senior creditor its right to vote on any chapter 11 plan proposed for the borrower. The bankruptcy court ruled that such a provision is not enforceable because it conflicts with the Bankruptcy Code. In a twist, however, the court concluded that the subordinated creditor lacked "prudential standing" to participate in the confirmation process because it was extremely out-of-the-money and therefore had no stake in the outcome of the case but was attempting to assert the rights of third parties. [read more …]
Illinois Bankruptcy Court Examines Statutory Authority for Enforcing Foreign Bankruptcy Court Orders in Chapter 15 Cases
In In re Condor Flugdienst GMBH, 2021 WL 1166016 (Bankr. N.D. Ill. Mar. 26, 2021), the U.S. Bankruptcy Court for the Northern District of Illinois ruled that, if requested relief is not specifically authorized under chapter 15 of the Bankruptcy Code, a bankruptcy court still has the discretion to grant such relief provided it would have been authorized in a cross-border "ancillary" bankruptcy proceeding under chapter 15's repealed predecessor, section 304. In this case, the court held that it was expressly authorized under section 1521 of the Bankruptcy Code, as guided by section 1522, to recognize and enforce a foreign court order confirming a German debtor's liquidation plan. The court also permanently enjoined prepetition litigation commenced by certain creditors because such relief was necessary to effectuate the liquidation plan. [read more …]
In Brief: U.S. Supreme Court Declines Review of High-Profile Bankruptcy Rulings
On May 3, 2021, the U.S. Supreme Court denied a petition to review a 2020 decision by a three-judge panel of the U.S. Court of Appeals for the Second Circuit. The court had ruled that investors in Bernard Madoff's brokerage firm did not have a defense to avoidance and recovery of $41 million in fictitious profit payments because they received the payments "for value." See Picard v. Gettinger (In re Bernard L. Madoff Investment Securities LLC), 976 F.3d 184 (2d Cir. 2020), cert. denied sub nom. Gettinger v. Picard, No. 20-1382 (U.S. May 3, 2021). On May 24, 2020, the Court declined to review a 2020 ruling by the U.S. Court of Appeals for the Fifth Circuit that the Coal Act of 1992, which was enacted to ensure that retired miners retained access to company-provided health care during a time when many coal companies were repudiating lifetime benefit promises, did not prevent chapter 11 debtor Westmoreland Coal Co. from modifying its retired employees' health care benefits under section 1114 of the Bankruptcy Code. See Matter of Westmoreland Coal Co., 968 F.3d 526 (5th Cir. 2020), cert. denied sub nom. Holland v. Westmoreland Coal Co., No. 20-880, 2021 WL 2044552 (U.S. May 24, 2021). [read more …]
Heather Lennox (Cleveland and New York) and Corinne Ball (New York) were named "Leading Lawyers" in the field of "Finance—Restructuring (including bankruptcy): corporate" in The Legal 500 United States 2021.
Bruce Bennett (Los Angeles and New York) was named a "Hall of Fame" lawyer in the fields "Finance—Restructuring (including bankruptcy): corporate" and "Finance—Restructuring (including bankruptcy): municipal" in The Legal 500 United States 2021.
Ben Larkin (London) and Sion Richards (London) were recognized in the area of Insolvency & Restructuring Law in the 2022 edition of The Best Lawyers in the United Kingdom.
Bruce Bennett (Los Angeles and New York) and Gregory M. Gordon (Dallas) received a "Band 1 Lawyer" ranking in the area of Bankruptcy/Restructuring in Chambers USA 2021.
Corinne Ball (New York) was among the "Senior Statespeople" named in Chambers USA 2021 and Chambers Global 2021 in the field of Bankruptcy/Restructuring.
Fabienne Beuzit (Paris) was named a "Next Generation Partner" in the field of Insolvency in the 2021 edition of The Legal 500 EMEA.
Dr. Olaf Benning (Frankfurt) was recognized in the field of Restructuring and Insolvency Law in the 2022 edition of The Best Lawyers in Germany.
Heather Lennox (Cleveland and New York), Kevyn D. Orr (Washington), Carl E. Black (Cleveland), Daniel J. Merrett (Atlanta), Robert W. Hamilton (Columbus), Thomas M. Wearsch (Cleveland), James O. Johnston (Los Angeles), Brad B. Erens (Chicago), Jeffrey B. Ellman (Atlanta), Dan T. Moss (Washington), and Charles M. Oellermann (Columbus) were recognized in the area of Bankruptcy/Restructuring in Chambers USA 2021.
Jones Day received a 2021 Australasian Law Award for the "Insolvency & Restructuring Deal of the Year" in advising the Queensland Investment Corporation on its A$200 million combined debt and equity investment and participation in the A$3.5 billion recapitalization and acquisition out of administration of Virgin Australia, Australia's second-largest airline, by Bain Capital. The Jones Day team included Mark Crean (Sydney), Isaac West (Brisbane), Lucas Wilk (Perth), Max O. Rose (Brisbane), Dale Atkinson (Perth), Karthik Kumar (Singapore), and Lynette Lim (Singapore).
Caitlin K. Cahow (Chicago) is included in the National LGBT Bar Association's "40 Best LGBTQ+ Lawyers Under 40—Class of 2021." The LGBT Bar's 40 Under 40 Class of 2021 is composed of LGBTQ+ legal professionals who have distinguished themselves in their field and demonstrated a profound commitment to LGBTQ+ equality. They are noted for playing an important part in building a pipeline for the future success of LGBTQ+ lawyers.
Heather Lennox (Cleveland and New York), Carl E. Black (Cleveland), Robert W. Hamilton (Columbus), T. Daniel Reynolds (Cleveland), Marissa Alfano (Cleveland), and Nick Buchta (Cleveland) are part of a team of Jones Day lawyers representing Nine Point Energy Holdings, Inc. ("Nine Point"), an oil and gas exploration and production company that filed for chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware on March 15, 2021. With Jones Day's assistance, Nine Point recently prevailed in a pair of adversary proceedings seeking judgments that: (i) Nine Point's contracts with its former midstream services provider, Caliber Midstream ("Caliber"), did not contain covenants running with the land, and thus Nine Point could reject the contracts and sell its assets free and clear of any interest that Caliber may have in the assets of the estate; and (ii) $150 million of Caliber's asserted liens on Nine Point's oil and gas assets under North Dakota law were invalid. On May 4, 2021, the bankruptcy court granted summary judgment for Nine Point in the first proceeding on four of the five counts in the complaint, clearing the path for a bankruptcy sales process to move forward. On June 28, the bankruptcy court ruled that at least $150 million of the $157 million in liens asserted by Caliber were invalid, thus clearing the path for the successful reorganization of Nine Point through a sale of its assets.
An article written by Corinne Ball (New York) titled "Bankruptcy Court May Be Effective Forum to Address Aggressive Action by State or State Agencies Given Recent Ruling on Waiver of Sovereign Immunity" was published in the June 23, 2021, edition of The New York Law Journal.
An article written by Daniel J. Merrett (Atlanta) and Mark G. Douglas (New York) titled "Another Court Adopts Majority View in Approving Bankruptcy Trustee's Use of Tax Code Look-Back Period in Avoidance Actions" was posted on the June 15, 2021, Harvard Law School Bankruptcy Roundtable.
An article written by Daniel J. Merrett (Atlanta) and Mark G. Douglas (New York) titled "Illinois Ruling Clarifies Ch. 7 Substantial Contribution Claims" was published in the May 21, 2021, edition of Law360.
An article written by Dan B. Prieto (Dallas) and Mark G. Douglas (New York) titled "Should Equitable Mootness Bar Appeals Only of Chapter 11 Plan Confirmation Orders?" was published by Lexis Practical Guidance on May 5, 2021.
An article written by Charles M. Oellermann (Columbus) and Mark G. Douglas (New York) titled "First Impressions: Third Circuit Scuttles Triangular Setoff in Bankruptcy" was published by Lexis Practical Guidance on April 27, 2021.
An article written by Daniel J. Merrett (Atlanta) and Mark G. Douglas (New York) titled "Debate Intensifies on Substantial Contribution Claims in Chapter 7 Cases" was published by Lexis Practical Guidance on May 6, 2021.
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