(US) Fifth Circuit Puts Serta Simmons Uptier Transaction to Bed

By Tara Peramatukorn on January 16, 2025 Posted in US

On December 31, 2024, the U.S Court of Appeals for the Fifth Circuit issued a unanimous decision reversing the bankruptcy court’s ruling that allowed an uptier transaction entered into by Serta Simmons Bedding, LLC (“Serta Simmons”) in 2020 (the “2020 Uptier”). The appellate court also held that plan provisions requiring the indemnification of the lenders who participated in the 2020 Uptier (“Prevailing Lenders”) were impermissible under the U.S. Bankruptcy Code and should be excised from the plan.

The use of uptier transactions by distressed borrowers has increased dramatically over recent years, spurred by the marked increase in distressed companies during the COVID-19 pandemic. The 2020 Uptier was one of the first major uptier transactions and was controversial from its inception because it resulted in the subordination of a majority of creditors’ interests. Typically, in an uptier transaction, a borrower will issue new superpriority debt under an existing credit facility, consented to by the majority of lenders, in exchange for giving those lenders’ debt superior status. Such transactions earned their name because new debt is “uptiered,” subordinating the existing debt of lenders who were not party to the uptier transaction. This is what occurred with the 2020 Uptier—the Prevailing Lenders were able to uptier their loan, with the remaining lenders (“Excluded Lenders”) recovering little on their claims in the restructuring.

Delaware Bankruptcy Court Denies Healthcare Debtors’ Request to Enter into Nonbinding Commitment Letter (US)

By Kyle Arendsen on January 10, 2025 Posted in UK

The goal of a sale process under section 363 of the United States Bankruptcy Code is for a debtor to maximize the value of estate property for the benefit of all parties-in-interest. But what happens when the only party that is interested in purchasing the estate property is a former insider who is unwilling to submit a binding offer without certain bid protections, such as a breakup fee and expense reimbursement? This is the predicament that the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) recently faced, ultimately denying such protections without prejudice. The decision serves as a helpful reminder of how debtors should conduct a bidding process, evaluate bids, and what terms interested parties should expect a bankruptcy court to find improper.

Top 10 Predictions for 2025 in UK Restructuring and Insolvency

By Rachael Markham on January 8, 2025 Posted in UK

What can we expect in R&I in 2025? Well that’s always difficult to know for certain but our predictions are based on what we saw in 2024, and how we expect some of these to play out in 2025.

And let’s see where we are at the end of the year because there were a few twists and turns in 2024 that no one saw coming that kept us all on our toes.

You can probably add a few of our 2024 predicitions to this list too – some of these did not come to fruition but they may well still be on the cards for 2025.

Distressed M&A Deals in Poland

By Marcin Wnukowski and Małgorzata Olech on January 7, 2025 Posted in EU

The post-pandemic anxiety on the European markets was largely due to the anticipated wave of bankruptcies. High interest rates, surging energy prices and out-of-control inflation took their toll on many European businesses. Although the doomsday scenario did not come to pass, we have been seeing increasingly more restructurings and insolvencies. The Polish market is no exception. Currently, with more stable interest rates and restored investor confidence, distressed assets sales may seem like an attractive way to deploy capital.

When is the UK Court likely to agree to a long administration extension?

By Rachael Markham on December 11, 2024 Posted in UK

It is usual for administrators to ask for an administration to be extended by 12 months – but we have seen the courts agree to longer periods. For example, certain of the Lehman group company administrations were extended by periods of four and six years – having previously been extended by eight.

In the more recent case of VTB Capital Plc[1] the court extended the administration period for 5 years.

So, when is it that the Court is likely to agree to a long extension? Bearing in mind that extensions aside, the legislation only provides for an administration to last for 12 months.

(UK) The importance of a date: When is a winding up petition presented?

By Rachael Markham on December 10, 2024 Posted in UK

The date that a winding up petition is presented has consequences – consequences for the company subject to the petition, its directors, the petitioning creditor and it is also important in the context of a subsequent liquidation where the date is relevant to claims which a liquidator can bring.

Although seemingly a simple question, the Court of Appeal was asked to determine the date of presentation of a winding up petition when, in today’s world, petitions are now filed at court electronically using ce-file (Re A Company (CR-2024-BHM-000012 [2024] EWCA Civ 1436).

I have the power – UK court confirms the ability of sole directors to make decisions

By Rachael Markham on November 28, 2024 Posted in UK

Following the decisions in Fore Fitness and Active Wear – where the court examined the validity of decisions made by a sole director of a company that operated wholly or partly under the Model Articles[1]– the position was not entirely settled.

In the context of administration appointments where the validity of an appointment rests on the power of the appointor to make an appointment, the uncertainty is more acute. If there is no power, the validity of the appointment is brought into question. Although Active Wear did bring comfort to practitioners (see discussion in our earlier blog) it left a question mark about decisions made by a sole director where the company operated under Model Articles but historically there had been more than one director – in such instances, could a sole director transact business?

In the recent decision of KRF Service (UK) Limited [2024] the judge had to consider that question.

In KRF the company issued an application to appoint administrators, following a resolution passed at a board meeting by the company’s sole director. The company had prevously had multiple directors, but at the time of the resolution to appoint administrators only one was in office – the director being unable to find anyone willing to act because of sanction issues, and the other directors having resigned.

No Touchdown for Antonio Brown as Bankruptcy Court Denies Discharge of $1.2 Million Judgment (US)

By Kyle Arendsen on November 21, 2024 Posted in US

Subchapter V bankruptcy cases have exploded in popularity, primarily due to its high rate of obtaining confirmed plans, significantly lower costs, faster pace, and ability for debtors to retain the equity in their businesses. But some bankruptcy courts and circuit courts have begun expanding exceptions for debts that Subchapter V debtors cannot discharge. Recently, former NFL superstar wide receiver Antonio Brown demonstrated when such an exception can apply and how prepetition judgment creditors can preserve their claim against debtors notwithstanding a bankruptcy filing. Depending on the circuit, Brown’s bankruptcy case also serves as a warning to corporate Subchapter V debtors attempting to discharge prepetition debts.

(UK) When Will a s.236 Application Fail?

By Vanessa Stuart and Devinder Singh on November 5, 2024 Posted in UK

The powers of investigation afforded to office-holders under s. 236 of the Insolvency Act 1986 are there to enable the court to help an office-holder discover the true facts concerning the affairs of a company, its trading and dealings, to allow the office-holder to complete their function.

These powers are wide reaching and include compelling the provision of information to the office-holder by delivery up of books, papers or other records, answering requests for clarification, providing affidavits or submitting to oral examinations.

Furthermore, these powers can extend to documents which comprise not only the company’s own records but those of third parties insofar as they relate to the affairs or property of the company. However, when it comes to exercising its discretion against third parties, the court must balance the reasonable requirements of the office-holder to obtain the information or documentation sought, against any possible oppression or inconvenience to the third-party.

Judge Goldblatt Reconsiders What Constitutes “Consent” Post Purdue Pharma (US)

By Michelle Saney on October 29, 2024 Posted in US

The Supreme Court recently issued its long-awaited decision in Harrington v. Purdue Pharma L.P., 144 S.Ct. 2071 (U.S. 2024) (“Purdue Pharma”), addressing whether nonconsensual third-party releases are permissible under the Bankruptcy Code. In a 5-4 decision, the Court ruled that nonconsensual third-party releases are not permitted under the Bankruptcy Code. Notably, however, the Supreme Court did not opine on the issue of whether for a release to be deemed consensual it must contain an “opt-in” or “opt-out” provision for creditors and parties-in-interest. See Purdue Pharma, 144 S.Ct. at 2087–88 (“As important as the question we decide today are ones we do not. Nothing in what we have said should be construed to call into question consensual third-party releases offered in connection with a bankruptcy reorganization plan; those sorts of releases pose different questions and may rest on different legal grounds than the nonconsensual release at issue here. . . . Nor do we have occasion today to express a view on what qualifies as a consensual release or pass upon a plan that provides for the full satisfaction of claims against a third-party nondebtor.”). Thus, this issue remains open.

While there are variations as to process, an “opt-out” release typically requires parties entitled to vote on the plan and who have received ballots to do so, or nonvoting parties (who are deemed to accept or reject a plan) who have received notice, to check a box affirmatively indicating that they do not agree to provide the releases which the plan seeks to provide. In other words, in order not to be deemed to have agreed to the releases, the party must take affirmative action demonstrating a conscious decision to do so. Parties that abstain from voting will typically be deemed to have consented to the releases. In some cases, where no ability to opt-out has even been provided, parties that vote in favor of a plan are also deemed to consent to the releases. In contrast, under an “opt-in” mechanism, voting and nonvoting parties must check a box affirmatively agreeing to the nondebtor releases. Any party that does not check the box, or “opt-in,” is deemed to be a non-releasing party, including parties who do not return ballots at all. Bankruptcy Judge Craig T. Goldblatt from the District of Delaware is one of the latest judges to grapple with this issue.