Business Restructuring Review July-August 2023 | Vol. 22 No. 4
In This Issue:
Second Circuit Greenlights Purdue Pharma Chapter 11 Plan Containing Nonconsensual Third-Party Releases
In the latest chapter of the longstanding debate concerning the validity of release provisions in non-asbestos trust chapter 11 plans that limit the potential exposure of various non-debtor parties involved in the process of negotiating, implementing, and funding a plan, the U.S. Court of Appeals for the Second Circuit handed down a long-awaited ruling regarding the validity of nonconsensual third-party releases in the chapter 11 plan of pharmaceutical company Purdue Pharma, Inc. and its affiliated debtors (collectively, "Purdue"). In In re Purdue Pharma L.P., 69 F.4th 45 (2d Cir. 2023), the Second Circuit reversed a district court decision finding that the bankruptcy court lacked the power to approve a plan provision releasing the founding Sackler family from liabilities arising from Purdue's sale of opioids and affirmed the bankruptcy court order confirming Purdue's chapter 11 plan. [read more …]
Illinois Bankruptcy Court: Whether Dispute Is Core or Non-Core Not "Bright Line" in Determining Enforceability of Arbitration Clause
In Johnson v. S.A.I.L. LLC (In re Johnson), 649 B.R. 735 (Bankr. N.D. Ill. 2023), the U.S. Bankruptcy Court for the Northern District of Illinois denied in part and granted in part a motion demanding that certain disputes between a chapter 13 debtor and her prepetition lender be referred to arbitration in accordance with the terms of an arbitration clause in a loan agreement. In so ruling, the court emphasized that, in determining whether a dispute should be arbitrated instead of adjudicated by a bankruptcy court, there is no "bright line" rule dependent on whether the dispute is within the court's "core" jurisdiction. Instead, the court must examine the nature of the dispute, including whether it is core or non-core, to determine whether arbitration would inherently conflict with the policies underlying the Bankruptcy Code. If such an inherent conflict exists, a demand to arbitrate the dispute should be denied. [read more …]
California Bankruptcy Court Examines Chapter 15 Discovery Rules
In In re Golden Sphinx Ltd., 2023 WL 2823391 (Bankr. C.D. Cal. Mar. 31, 2023), the U.S. Bankruptcy Court for the Central District of California denied a motion filed by a creditor of a chapter 15 debtor seeking discovery from a bank that had provided financing to one of the debtor's affiliates, concluding that the discovery request was an overbroad and inappropriate "fishing expedition" under Rule 2004 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and represented an effort to give the creditor an unfair advantage in non-bankruptcy litigation. However, in so ruling, the court held that Bankruptcy Rule 2004 applies in chapter 15 cases (as well as cases under other chapters of the Bankruptcy Code) and that, under appropriate circumstances, a party other than the debtor's foreign representative may obtain discovery in a chapter 15 case under Bankruptcy Rule 2004. [read more …]
U.S. Supreme Court Bankruptcy Roundup
Discussing recent Supreme Court rulings in cases involving or potentially impacting bankruptcy law as well as dispositions of notable petitions for certiorari. [read more …]
Objections to Bankruptcy Asset Sale Did Not Rise to Level of "Adverse Interest" Defeating Buyer's Good-Faith Status
In SR Construction Inc. v. Hall Palm Springs LLC (In re RE Palm Springs II LLC), 65 F.4th 752 (5th Cir. 2023), the U.S. Court of Appeals for the Fifth Circuit revisited the finality of unstayed orders authorizing bankruptcy sales or leases to good-faith purchasers or lessees. The court reaffirmed its earlier decisions that a buyer's or lessee's good faith under section 363(m) of the Bankruptcy Code is not defeated merely because it is aware of objections to the proposed sale or lease. Instead, the claims of the party challenging the sale or lease must rise to the level of an "adverse interest" in the ownership of the property. The Fifth Circuit also held that transparency in the sale or lease process is of paramount importance in establishing good faith. [read more …]
Delaware Bankruptcy Court Rules that Due Diligence Is Element of Preference Claim Rather Than Basis for Affirmative Defense
In In re Pinktoe Tarantula Ltd., 2023 WL 2960894 (Bankr. D. Del. Apr. 14, 2023), the U.S. Bankruptcy Court for the District of Delaware addressed the "due diligence" requirement in preferential transfer avoidance litigation that was added to the Bankruptcy Code in 2019. In dismissing a preference avoidance complaint without prejudice, the court concluded that the due diligence requirement in section 547(b) of the Bankruptcy Code is an element of a preference claim that must be proved by the preference plaintiff rather than the basis for an affirmative defense that must be proved by the defendant. [read more …]
"Straight" Dismissal of Chapter 11 Case Did Not Violate Jevic's Prohibition of "Structured Dismissals" that Do Not Conform with Bankruptcy Code's Priority Scheme
In Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973 (2017), the U.S. Supreme Court held that the Bankruptcy Code does not allow bankruptcy courts to approve distributions to creditors in a "structured dismissal" of a chapter 11 case that violate the Bankruptcy Code's ordinary priority rules without the consent of creditors. However, because the Court declined to express any "view about the legality of structured dismissals in general," many open questions remain regarding the structured dismissal mechanism. A bankruptcy appellate panel for the Ninth Circuit addressed structured dismissals in In re Pourteymour, 2023 WL 2929323 (B.A.P. 9th Cir. Apr. 12, 2023). The BAP affirmed a bankruptcy court order granting a "straight dismissal" of a chapter 11 case, finding that, notwithstanding the debtor's pledge on the record to pay some, but not all, unsecured creditors after dismissal of his bankruptcy case, the court's dismissal order complied with all applicable provisions of the Bankruptcy Code. [read more …]
Liquidating Chapter 11 Plan Confirmed Despite Provision Temporarily Enjoining Litigation Against Corporate Debtors
To prevent "trafficking in corporate shells," the Bankruptcy Code prohibits any discharge of corporate or partnership debts if the debtor is not an "individual" and, in a chapter 11 case, if the debtor proposes a liquidating plan contemplating the cessation of the debtor's business following confirmation. The U.S. Bankruptcy Court for the District of Delaware addressed this prohibition in In re Kabbage Inc., No. 22-10951 (Bankr. D. Del. Mar. 15, 2023). In an unpublished letter ruling, the court concluded that a plan provision permanently enjoining third parties from suing the debtors, their estates, or a court-appointed "wind-down officer" following confirmation could not be confirmed because it was tantamount to a prohibited discharge of the debts of a liquidating corporation. However, instead of simply denying confirmation, the court exercised its broad equitable powers to confirm the plan, as amended to provide for merely temporary injunctive relief until such time that the debtors' assets had been liquidated. [read more …]
Meet Tom Wearsch
Tom Wearsch brings a strong business acumen and creative approach to finding practical, efficient solutions for distressed and healthy companies, financial institutions, equity and hedge funds, bondholders, committees, boards, and management. He has served as counsel to numerous corporations involved in chapter 11 reorganizations, out-of-court restructurings, and distressed mergers and acquisitions for a range of industries, including automotive, aerospace, manufacturing, health care, energy, hospitality, securities, mining, media, and technology.
Tom's many out-of-court restructurings have allowed clients to continue their business operations without filing bankruptcy. He also has significant experience representing debtors and other constituencies in all aspects of complex chapter 11 proceedings. He has served as chapter 11 debtor's counsel in Shiloh Industries, Peabody Energy, and Alpha Natural Resources and as purchaser's counsel in National Label, GigaMonster, Xchange Telecom, Bold Ocean, and Sakthi Automotive. Prior to joining Jones Day, Tom served as company, trustee, or chapter 11 debtor's counsel in Black Elk Offshore Energy, Swift-Cor Aerospace, Excello Engineered, VSV Group, Creative Polymer, Westgate Resorts, Bernard L. Madoff Investment Securities, and Globix, and as purchaser's counsel in Dune Energy, Cardinal Fastener, and Saberliner Aerospace.
A partner in the New York and Cleveland offices, Tom serves on the boards of Shoes and Coats for Kids, Brookhaven Farms, and the Harvard Club of Northeast Ohio.
Bruce Bennett (Los Angeles) received a Band 1 Ranking in the field of Bankruptcy/Restructuring in the 2023 edition of Chambers Global: The World's Leading Lawyers for Business. He also received a Band 1 Ranking in the field of Bankruptcy/Restructuring in the 2023 edition of Chambers USA.
Corinne Ball (New York) and Bruce Bennett (Los Angeles) were designated "Hall of Fame" attorneys in the field Restructuring (Including Bankruptcy): Corporate in the 2023 edition of Legal500 United States. Heather Lennox (Cleveland and New York) received a "Leading Lawyer" designation, and Brad B. Erens (Chicago), Carl E. Black (Cleveland), Dan B. Prieto (Dallas), Gregory M. Gordon (Dallas), and Matthew Kairis (Dallas and Houston; Business & Tort Litigation and Business Restructuring & Reorganization) were named "Other Key Lawyers."
For the second consecutive year, Jones Day topped the list of BTI Client Service All-Stars with 13 attorneys—more than any other law firm in the report. BTI bases the rankings on interviews with top legal decision-makers at large organizations with more than $700 million in annual revenue. Among the 13 Jones Day attorneys were Bruce Bennett (Los Angeles) and Jane Rue Wittstein (New York).
Corinne Ball (New York) was among the "Senior Statespeople" named in the 2023 edition of Chambers USA in the field of Bankruptcy/Restructuring.
Heather Lennox (Cleveland and New York), Bruce Bennett (Los Angeles), Kevyn D. Orr (Washington), Gregory M. Gordon (Dallas), Paul M. Green (Houston), 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 and Cleveland), Brad B. Erens (Chicago), Jeffrey B. Ellman (Atlanta), and Dan T. Moss (Washington) were recognized in the area of Bankruptcy/Restructuring in the 2023 edition of Chambers USA.
Genna Ghaul (New York) was named a "Rising Star" for 2023 in the practice area Bankruptcy by Law360.
Lawyers of Color named Kevyn D. Orr (Washington) to its 2023 Power List. The annual Power List recognizes the most influential minority attorneys and allies in the United States.
Fabienne Beuzit (Paris) was designated a "Leading Individual" in the practice area of Insolvency in the 2023 edition of The Legal 500 EMEA. She was also recognized in the field of Restructuring/Insolvency in Chambers Europe 2023.
Roger Dobson (Sydney) and Katie Higgins (Sydney) were recognized in the practice area of Insolvency and Reorganisation Law in the 2024 edition of Best Lawyers in Australia. Roger was also named to the Hall of Fame in the 2023 edition of The Legal 500 Asia Pacific in the practice area Australia Restructuring and Insolvency.
Dr. Olaf Benning (Frankfurt) was recognized in the practice area Restructuring and Insolvency Law in the 2024 edition of The Best Lawyers in Germany.™
Juan Ferré (Madrid) was designated a "Leading Individual" in the practice area Restructuring and Insolvency in the 2023 edition of The Legal 500 EMEA.
Corinne Ball (New York), Bruce Bennett (Los Angeles), 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 included in the 2023 Lawdragon 500 Leading Bankruptcy and Restructuring Lawyers.
Amanda Johnson (Chicago) was one of three Jones Day associates selected for two different Leadership Council on Legal Diversity programs. The Leadership Council on Legal Diversity is an organization of more than 400 corporate chief legal officers and law firm managing partners who have pledged themselves to creating a truly diverse U.S. legal profession.
Sid Pepels (Amsterdam) was nominated to Class XII of the III NextGen Leadership Program for 2023. The Program is sanctioned under the leadership of the International Insolvency Institute and is intended to recognize the most prominent younger "Rising Stars" in the international insolvency area, while creating a venue for scholarship and networking for members of this program.
An article written by Oliver S. Zeltner (Cleveland) and Mark G. Douglas (New York) titled "Sears Holding: A Case Study in Valuing Collateral in Chapter 11" was published on May 9, 2023, in the Harvard Law School Bankruptcy Roundtable.
An article written by Dan B. Prieto (Dallas) and Mark G. Douglas (New York) titled "Texas District Court: Equitable Mootness Doctrine Does Not Preclude Appellate Review of Chapter 11 Plan Exculpation Clause" was published on June 5, 2023, in Lexis Practical Guidance.
An article written by Brad B. Erens (Chicago) and Mark G. Douglas (New York) titled "Massachusetts Bankruptcy Court Adopts 'Per Plan' Approach to Impaired Class Acceptance Requirement for Confirmation of Joint Chapter 11 Plan" was published on June 2, 2023, in Lexis Practical Guidance.
An article written by Oliver S. Zeltner (Cleveland) and Mark G. Douglas (New York) titled "U.S. Supreme Court Rules that Bankruptcy Code's Protection of Unstayed Asset Sale Orders to Good-Faith Purchasers Is Not Jurisdictional" was published on June 2, 2023, in Lexis Practical Guidance.
An article written by Dan B. Prieto (Dallas) and Mark G. Douglas (New York) titled "Second Circuit Weighs In on Bankruptcy Code v. Chapter 11 Plan Impairment and the Solvent-Debtor Exception" was published on June 13, 2023, in the Harvard Law School Bankruptcy Roundtable.
An article written by Daniel J. Merrett (Atlanta) and Mark G. Douglas (New York) titled "New York Bankruptcy Court Breaks from Precedent in Ruling that Time Approach Should Be Used to Calculate Landlord's Claim for Lease Termination Damages" was published on June 5, 2023, in Lexis Practical Guidance.
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