The Aftermath of a Complicated Breakup: Third Circuit Holds Stalking Horse Bidder in Terminated Transaction May Assert Potential Administrative Expense Claim Notwithstanding Disallowance of Its Termination Fee
by | posted in: Bankruptcy, Bankruptcy Administration and Jurisdiction, Priority | 0

By Ronit J. Berkovich (Weil)

Ronit J. Berkovich

In a recent decision, In re Energy Future Holdings Corp., 2021 U.S. App. LEXIS 7400 (3d Cir. 2021) (“EFH II”), the Third Circuit held that a stalking horse may assert an administrative expense claim under section 503(b)(1)(A) of the Bankruptcy Code for certain transactional expenses, even when it is not entitled to a termination fee.

In EFH II, the debtors terminated a merger agreement with a stalking horse and the stalking horse applied for payment of a termination fee.  After the application was denied, the stalking horse filed an administrative expense application for costs incurred in attempting to complete the merger.  In response, various bondholders jointly filed a motion to dismiss and a motion for summary judgment.  After the Delaware Bankruptcy Court granted the bondholders’ motions, the Third Circuit ruled that the administrative claim should not have been denied without further factual inquiry because the stalking horse plausibly alleged that it benefited the estate by providing information, accepting risks, and paving the way for a later successful deal.

 In so holding, the Third Circuit applied a broad standard for pleading a plausible administrative claim under section 503(b)(1)(A).  Going forward, it may be harder to obtain denial of an administrative expense application in the Third Circuit without a discovery process and evidentiary hearing.  While this decision establishes an alternative means for stalking horses to recover certain transactional expenses, its actual impact remains to be seen, as parties can draft provisions in transactional documents to address the scope of recoverable administrative claims.

The full article is available here.

Do Bankruptcy Courts Have Constitutional Authority to Approve Nonconsensual, Third-Party Releases?
by | posted in: Bankruptcy Roundtable Updates, Supreme Court, Third-Party Releases | 0

By Shmuel Vasser and Cara Kaplan (Dechert)

Shmuel Vasser
Cara Kaplan

The Third Circuit, applying the Supreme Court’s decision in Stern v. Marshall, recently held that the Bankruptcy Court has the authority to confirm a chapter 11 plan containing nonconsensual, third-party releases when such releases are integral to the debtor’s successful reorganization.

In Stern, the Supreme Court examined the scope of the bankruptcy court’s constitutional authority and found, among other things, that the bankruptcy court can resolve a matter that is integral to the restructuring of the debtor-creditor relationship.  Analyzing Stern, the Third Circuit in In re Millennium held that the Bankruptcy Court could confirm a plan that included non-consensual, third party releases because the releases were the result of “highly adversarial” and “extremely complicated” negotiations and without the releases, the debtor would not have been able to successfully reorganize.

The full article is available here.

Chapter 11 Plan Distributions Are Not Collateral Covered by Intercreditor Agreement’s Waterfall Provision
by | posted in: Bankruptcy Administration and Jurisdiction, Bankruptcy Roundtable Updates, Priority | 0

By Brad B. Erens and Mark G. Douglas (Jones Day)

Brad Erens
Brad Erens
Mark G. Douglas

In In re Energy Future Holdings Corp., 773 Fed. Appx. 89, 2019 WL 2535700 (3d Cir. June 19, 2019), a panel of the U.S. Court of Appeals for the Third Circuit ruled that adequate protection payments made during a bankruptcy case and distributions under a chapter 11 plan are not distributions of collateral for purposes of a “waterfall” provision in an intercreditor agreement. The ruling is a reminder that intercreditor agreements will apply only in accordance with their terms.Although the parties could have drafted the intercreditor agreement to apply to any consideration received from the debtor by the noteholders, they did not. Therefore, the intercreditor agreement did not apply to the adequate protection payments and plan distributions made to the noteholders.Creditors have recently learned similar lessons in other cases. Because the ruling was unpublished, the decision is not binding on courts in the Third Circuit.

The full article is available here.