Recent Developments in Bankruptcy Law, April 2018
by | posted in: Bankruptcy Administration and Jurisdiction, Derivatives, Financial Firms and Safe Harbors | 0

By Richard Levin (Jenner & Block LLP)

The bankruptcy courts and their appellate courts continue to explore issues of interest to practitioners and academics. This quarterly summary of recent developments in bankruptcy law covers cases reported during the first quarter of 2018.

Most notable were two Supreme Court decisions. Merit Mgmt. Group, LP. v. FTI Consulting, Inc. substantially reduced the scope of the financial contracts avoiding power safe harbor by directing courts to focus on the ultimate recipient of the transfer, rather than on the intermediate financial institutions who participated in the transfer. Village at Lakeridge ducked the substantive bankruptcy law issue of the standard for determining who is a non-statutory insider (although the dissent tackled it) and instead ruled only on the appellate standard of review of such determinations. 

Moving in the opposite direction from the Supreme Court’s reduction of safe harbor protections, the New York district court, on an appeal from the bankruptcy court’s decision, gave a broad reading to the ability of swap counter-parties under section 560 to close out and distribute collateral upon a default. (Lehman Bros.).

The Ninth Circuit took a strong position on the open question in the application of section 1129(a)(10), requiring an impaired consenting class for confirmation, adopting the “per-plan” approach. (Transwest) And the Fourth Circuit gave another boost to reorganizing real estate debtors by permitting a bankruptcy court to value collateral in a partial “dirt-for-debt” plan. (Bates Land).

In a case largely of first impression, the Texas bankruptcy court proposed rules to apply the “single satisfaction” rule of section 550(d) when the trustee settles with some but not all defendants. (Provident Royalties).

During the first quarter, the bankruptcy courts also expanded the reach of chapter 15 and its effectiveness. (Manley Toys, B.C.I. Finances Pty Ltd., Energy Coal S.P.A., Avanti, and Platinum Partners).

The full memo, discussing these and other cases, is available here, and the full (900-page) compilation of all prior editions is available here.

Ninth Circuit Holds That Impaired Accepting Class Requirement Applies to Plan Confirmation on a “Per-Plan” Rather Than a “Per Debtor” Basis
by | posted in: Bankruptcy Administration and Jurisdiction, Cramdown and Priority | 0

By James L. Bromley, Lisa M. Schweitzer, Sean A. O’Neal, Luka A. Barefoot, and Daniel K. Soltman (Cleary Gottlieb).

On January 25, 2018, the United States Court of Appeals of the Ninth Circuit held that section 1129(a)(10) of the Bankruptcy Code, which requires cramdown plans to have at least one impaired accepting class, applies on a “per-plan” basis, rather than a “per-debtor” basis. In re Transwest Resort Properties Inc., Case No. 16-16221 (9th Cir. Jan. 25, 2018). Under the “per-plan” rule, multiple debtors with a single plan of reorganization may cram down a plan on any creditor class with the support of only one impaired accepting class, even where the impaired accepting class has claims against a different debtor than the crammed down class that has rejected the plan. The Ninth Circuit is the first circuit court to address the “per-debtor” versus “per-plan” issue, and previous decisions were split between the Southern District of New York (adopting the “per-plan” approach) and the District of Delaware (adopting the “per-debtor” approach). Transwest will likely have a significant impact on how debtors and creditors within the Ninth Circuit and elsewhere consider their relative options prior to and during bankruptcy.

The remainder of this article will discuss the Transwest case background and the Ninth Circuit’s decision, and the expected impact of the decision, both inside and outside of the Ninth Circuit. The article is available here.

For earlier Roundtable coverage of 1129(a)(10), please see our recent post on strategic impairment in cramdowns.