Plaintiffs Cannot Claim Creditor Status Retroactively

 

The Fifth Circuit Court of Appeals reminded the plaintiff that standing is “determined as of the commencement of the suit” and post filing claims purchases will not suffice to establish standing. Here, the plaintiff, [also the debtor’s owner], sought to appeal appointment of special counsel. The Bankruptcy Court found that the plaintiff lacked standing to object because he was not a creditor and did not have a stake in the estate and then approved the Trustee’s application to employ SBPC over the improper objection. The plaintiff filed an appeal and then purchased a proof claim in order to obtain creditor status. The Fifth Circuit agreed with the Bankruptcy Court and noted that “[o]nly those directly, adversely and financially impacted by a bankruptcy order may appeal it.” Standing is “determined as of the commencement of the suit and a plaintiff cannot belatedly claim creditor status and establish standing retroactively.”

Ninth Circuit Holds Protecting a Claim To Its Fullest Extent Is Not Evidence of Bad Faith

 

The Ninth Circuit Court of Appeals recently held that a secured creditor’s purchase of general unsecured claims to block confirmation of a Chapter 11 plan did not in itself constitute bad faith. In In re Fagerdala USA, the debtor owned real property on which Pacific Western Bank held the senior secured claim. The debtor’s plan of reorganization sought to impair Pacific Western’s claim by using an interest rate lower than the penalty interest rate for its loan, and modifying the length of the term and other loan provisions. Under section 1129(a)(10) of the Bankruptcy Code, in order to approve a plan over the objections of impaired creditors, a debtor is required to obtain the consent of at least one impaired class. In order to ensure that this debtor would not receive such consent, Pacific Western attempted to strategically buy up a sufficient amount of general unsecured claims—the only other impaired class—to block the plan. While Pacific Western did not seek to buy every general unsecured claim, it was able to purchase “one-half in number” of the general unsecured class, and was thus able to block the approval of the plan.

After the plan vote, the debtor moved to designate the votes Pacific Western cast on behalf of its general unsecured claims, arguing that Pacific Western purchased those claims in bad faith. To “designate” means the votes for the claims will not be counted in voting to accept or reject the plan. The bankruptcy court granted the debtor’s motion, concluding that “designation is appropriate in this case because [Pacific Western] will have an unfair advantage over the unsecured creditors who did not receive a purchase offer and who hold the largest percentage of claims…in terms of amount.” The district court affirmed this ruling, but the Ninth Circuit reversed it and remanded the case to the bankruptcy court.

The Ninth Circuit reasoned that “merely protecting a claim to its fullest extent cannot be evidence of bad faith. There must be some evidence beyond negative impact on other creditors.” Looking to case law, the court enumerated several clear examples of bad faith such as where a competitor purchases claims to destroy the debtor’s business or further its own or a non-preexisting creditor purchasing claims only to block the plan and then stated “[d]oing something allowed by the Bankruptcy Code and case law, without evidence of ulterior motive, cannot be bad faith. Not offering to purchase all the claims in a class (to later use those claims to block a plan) is not—alone—sufficient to evidence the bad faith necessary to designate votes under § 1126(e).”

Diligence Deferred Is A Transfer Denied

The Delaware Bankruptcy Court recently voided the transfer of bankruptcy claims where the seller failed to obtain the debtor’s prior written consent, as required by the underlying promissory notes.

Both the promissory notes and the related loan agreement included anti-assignment language providing that any transfer would be null and void unless the debtor provided its prior written consent. In spite of this restriction, the note holders transferred the notes to buyer without obtaining the debtor’s consent. When buyer filed a proof of claim based on the transferred notes, the debtor objected, arguing that the transfer was null and void because the debtor never consented.

Buyer first argued that the anti-assignment clause could not invalidate the transfer as a matter of Delaware law. In holding to the contrary, the court distinguished between anti-assignment clauses that merely limit a party’s “right” to assign from clauses that limit a party’s “power” to assign. Delaware courts will invalidate transfers under a contract where such contract includes an anti-assignment clause that provides any assignment made in violation of the clause will be null and void (e.g. limitation of “power” to assign), but will not invalidate transfers where the contract’s anti-assignment clause does not so provide (e.g. limitation of “right” to assign). The court held that the anti-assignment clauses in Woodbridge properly restricted the noteholders’ power to assign the notes because they provided for voiding any transfer made in violation thereof. Thus, invalidation of the transfers pursuant to the anti-assignment clauses was proper.

Buyer next argued that the anti-assignment clauses unenforceable either because of debtor’s breach of the agreement or because of UCC §9-408. The court disagreed holding “it is axiomatic that a non-breaching party may not emerge post-breach with more rights than it had pre-breach.” Accordingly, the anti-assignment clause remained attached to the promissory notes because “neither the [assignors] nor any assignee were able to emerge post-breach with more rights than they had pre-breach.” The Court then found UCC §9-408, which invalidates provisions restricting assignment in grants of security interests, inapplicable because Contrarian was not granted a security interest in the promissory notes.

Buyer then asserted that even if the anti-assignment clauses were both valid and enforceable they did not apply because the noteholders only transferred their rights under the notes and not the notes themselves. The court disagreed holding that “[t]he language of both the Anti-Assignment Clause and the Loan Agreement manifests both a clear intention to forbid the assignment of the Promissory Note itself, and any rights thereunder.”

While not breaking new ground, the case reinforces the court’s view that “claim purchasers are sophisticated entities that are capable of both assessing the risk of disallowance through due diligence, and mitigating that risk through contractual provisions, such as indemnities.” It also serves as a reminder that reviewing the underlying documents for transfer restrictions is a critical part of a claim purchaser’s due diligence. While not clear from the decision whether settling the transfer via participation would have overcome the disability, it is good practice to include a “participation savings clause” that takes effect if an assignment is deemed invalid. Finally, what is also not clear is whether the result would have been different if the seller had filed a proof of claim before or in conjunction with the transfer.

Ocean Rig Team Continues To Be Recognized for Groundbreaking Work

Raniero D’Aversa and Evan Hollander accepting the Large ($1-5 billion) Turnaround of the Year Award at the Turnaround Atlas Awards on July 19, 2018.

The London-based members of the Ocean Rig team attending the second annual GRR Awards on June 26, 2018.

The Ocean Rig team accepting their awards at the gala hosted by M&A Advisor on June 18, 2018 in New York.

Our Ocean Rig team continues to garner recognition for our precedent-setting work on the transaction.

Most recently, the Ocean Rig transaction was named Large ($1-5 billion) Turnaround of the Year at the Turnaround Atlas Awards.

Last month, our Ocean Rig team was recognized with the Innovation in Cross-Border Insolvency and Restructuring Award during the second annual GRR Awards, hosted by Global Restructuring Review in London. The award highlights the deal’s precedent-setting pre-appointment CoMI shift.

Also in June, the restructuring of the Cayman Islands-based offshore drilling contractor won two awards at the M&A Advisor’s 2018 International M&A Awards: Restructuring of the Year ($1 – $5 billion) and Energy Deal of the Year.

Ocean Rig: Charting a Course Through Chapter 15 Provisional Relief, Recognition, and Appeals

Evan Hollander and Emmanuel Fua co-authored an article for the August 2018 issue of The Review of Banking & Financial Services about the unique issues involved in the recent chapter 15 bankruptcy proceedings of offshore drilling contractor Ocean Rig UDW. The proceedings produced precedent setting rulings regarding the scope of provisional relief available prior to a recognition hearing, the steps necessary to establish a debtor’s COMI prior to the commencement of a foreign proceeding, and the applicability of appellate standing and equitable mootness doctrines to appeals from recognition orders. Evan and Emmanuel, members of the Orrick team that acted as lead counsel to Ocean Rig in the proceedings, discuss these issues and provide useful insights for parties involved in cross-border restructurings.

Second Circuit Affirms Sabine: New Focus on Horizontal Privity Requirement May Affect Oil and Gas Gathering Agreement Terms

The Sabine Oil & Gas Corp. chapter 11 bankruptcy has been closely watched by many for guidance on how to structure midstream gathering agreements between upstream producers and midstream gatherers (who gather, transport and process oil and gas after it has been extracted from the land). On May 25, 2018, the U.S. Court of Appeals for the Second Circuit held that the debtor, Sabine, had the right to reject gathering agreements with two midstream companies. In re Sabine, 2018 WL 2386902 (2d. Cir. May 25, 2018). In the Sabine agreements, Sabine had agreed to dedicate all of the gas produced from a designated area for processing by one of the midstream gatherers.

Looking to Texas law, the Second Circuit ruled that for the agreements to be treated as covenants “running with the land” immune from such rejection by the debtor, there would have to be horizontal privity relating to the land. For horizontal privity to exist, there must be a common interest in the land in addition to the applicable covenant at the time of the agreement. For example, horizontal privity exists where Party A conveys a fee interest in real property in fee to Party B, if as part of the same transaction Party B grants Party A a leasehold interest over the conveyed real property. Because, in the view of the Second Circuit, there was no such privity in the Sabine case, the agreements were subject to rejection.

The Second Circuit’s rationale surprised some because the district court had relied on a different theory in allowing the rejection of the agreement. Because the Second Circuit’s ruling was made by summary order and was not intended to have precedential effect, and because it speaks to Texas law, the decision will have limited, if any, precedential value. Nonetheless, this Second Circuit ruling will be looked at by other courts facing similar issues, and may have some persuasive value. As a result, practitioners may want to examine their approach to midstream gathering and services agreements and whether their agreements should be structured to ensure that horizontal privity exists between the parties.

Case History and Differing Grounds for Decisions READ MORE

Orrick Wins S.D.N.Y. Dismissal of Chapter 15 Appeal by Purported Shareholder on Standing and Equitable Mootness Grounds

In an April 6, 2018 memorandum opinion and order, U.S. District Judge John G. Koeltl dismissed an appeal challenging the Chapter 15 recognition of a Cayman Islands restructuring of an offshore drilling contractor, holding that the appellant lacked standing and that the appeal was equitably moot. See In re Ocean Rig UDW Inc., No. 17-cv-7222 (JGK), 2018 WL 1725223 (S.D.N.Y. Apr. 6, 2018).

The appeal was brought by a purported shareholder of debtor Ocean Rig UDW Inc. (“UDW”). The purported shareholder sought review of an order issued by U.S. Bankruptcy Judge Martin Glenn granting recognition of provisional liquidation and scheme of arrangement proceedings in the Cayman Islands of UDW and three of its subsidiaries (Drill Rigs Holdings Inc. (“DRH”), Drillships Financing Holding Inc. (“DFH”), and Drillships Ocean Ventures Inc. (“DOV”), collectively the “Debtors”) as “foreign main proceedings” under section 1517 of the Bankruptcy Code.

In the ancillary proceedings in the Bankruptcy Court, the appellant had opposed the Debtors’ petition for recognition on numerous grounds, including on the basis that venue was improper in the Southern District of New York, that the Debtors failed to meet their burden of proving that their center of main interests (“CoMI”) was in the Cayman Islands, that the Debtors improperly manipulated their CoMI, and that granting recognition would violate the public policy objectives of Chapter 15. The Bankruptcy Court overruled the objections of the purported shareholder and granted recognition and other related relief under sections 1520 and 1521 of the Bankruptcy Code. See In re Ocean Rig UDW Inc., 570 B.R. 687 (Bankr. S.D.N.Y. 2017).

Appellant noticed an appeal but did not seek a stay of the recognition order. Thus, the Debtors moved forward with their restructuring via four interrelated schemes of arrangement under Cayman Islands law (the “Schemes”). The Schemes involved the exchange of more than $3.7 billion of existing financial indebtedness for $450 million in new secured debt, approximately $288 million in cash payments, and new equity in UDW. Under the Schemes, existing shareholders of UDW retained a nominal amount of equity in the reorganized UDW (0.02%), but this token amount was provided solely to facilitate UDW’s ability to maintain its NASDAQ listing and was not an indication of UDW’s solvency; in fact, the indicative value of the consideration distributed to the scheme creditors was significantly less than the face amount of their claims.

Appellant did not object to the provisional liquidation proceedings or the Schemes, which were later sanctioned (i.e., approved) by the Grand Court of the Cayman Islands. Similarly, appellant did not object to the request in the Chapter 15 proceedings for entry of an enforcement order, and the Bankruptcy Court ultimately issued an order giving full force and effect to the Schemes in the United States. Promptly upon the Bankruptcy Court’s issuance of the enforcement order, the Debtors consummated the restructuring in accordance with the Schemes.

Meanwhile, in the District Court, the Debtors and their authorized foreign representative moved to dismiss the appeal, arguing that the appellant’s purported shareholder status was insufficient to give her appellate standing, and that in any event, her appeal had been rendered equitably moot by the consummation of the restructuring. The District Court granted the motion on both grounds.

Standing

As to standing, the District Court reiterated the two-pronged standard that the appellant in a bankruptcy case (1) must be an “aggrieved person” whose pecuniary interests are directly affected by the order at issue; and (2) must have “prudential standing,” in that he or she is asserting his or her “own legal rights and interests and not those of third parties.” Ocean Rig, 2018 WL 1725223, at *3. In discussing the latter prong, the District Court observed that “[p]rudential standing is particularly important in a bankruptcy context where one party may seek to challenge the plan based on the rights of third parties who favor the plan.” Id.

The District Court held that the appellant, a purported shareholder, was not an “aggrieved person” because she “did not stand to lose anything” from UDW’s restructuring. Id. The District Court reasoned that UDW was insolvent prior to initiating restructuring proceedings in the Cayman Islands, and that UDW’s Cayman Scheme had the effect of sending the “total value of UDW, represented by the new equity” to “UDW’s creditors pro rata, with no value left for its pre-restructuring shareholders.” Id. Thus, the appellant lacked the requisite pecuniary interest. Id.

Additionally, the District Court rejected the appellant’s argument that she had a pecuniary interest in the restructuring because UDW’s Scheme gave 0.02% of UDW’s newly issued equity to pre-restructuring shareholders. Id. at *4. Upon observing that UDW’s Scheme was constructed in that manner “in an effort to avoid having to re-register UDW’s shares on the NASDAQ, which would have ‘adversely affected’ the newly issued shares”—rather than because the pre-restructuring shareholders were actually entitled to the newly issued shares on account of their pre-restructuring holdings—the District Court held that the shares were merely “gifts” from UDW’s creditors. Id. The District Court then concluded that the nominal distribution of new equity to preexisting shareholders did not suggest that the Debtors were solvent, and did “not change the fact that the appellant was not entitled to receive anything as part of the debtors’ restructuring because the debtors’ creditors had not received the full portion of their claims.” Id.

The District Court further observed that while under the Second Circuit’s decision in In re DBSD N. Am., Inc., 634 F.3d 79, 95 (2d Cir. 2011), a dissenting class of unsecured creditors in a Chapter 11 case “may have standing to challenge such ‘gifts’ to shareholders,” appellant had provided no authority that the receipt of such a gift “provide[d] the recipient shareholders with standing to contest the restructuring.” Ocean Rig, 2018 WL 1725223, at *4.

Equitable Mootness

The District Court also held that dismissal was warranted on equitable mootness grounds, which it considered an independent and “additional reason” for dismissal. Id. Although the District Court recognized that the doctrine of equitable mootness originated in Chapter 11 of the Bankruptcy Code, it noted that the doctrine had since been imported and applied in cases under Chapters 7, 9, and 13, as well as in a case involving former Bankruptcy Code section 304, the predecessor statute to Chapter 15. Id. (citing, e.g., Allstate Ins. Co. v. Hughes, 174 B.R. 884 (S.D.N.Y. 1994) (Sotomayor, J.)). The District Court found “unpersuasive” appellant’s argument that equitable mootness cases under Chapter 11 former Bankruptcy Code section 304 have no force in the Chapter 15 context, reasoning that the same “principles of finality and fairness” that pertain to “domestic organizations” and the same “concerns of comity” that animated former section 304 apply in the chapter 15 context. Id. at *6.

The District Court thus applied Second Circuit’s established equitable mootness standard to this Chapter 15 appeal. Id. at *5. Under that standard, “when a reorganization has been substantially consummated, there is a ‘strong presumption’ that an appeal of an unstayed order is moot.” Id. (collecting cases). Such presumption may only be overcome if five circumstances are present:

(a) the court can still order some effective relief; (b) such relief will not affect the re-emergence of the debtor as a revitalized corporate entity; (c) such relief will not unravel intricate transactions so as to knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the Bankruptcy Court; (d) the parties who would be adversely affected by the modification have notice of the appeal and an opportunity to participate in the proceedings; and (e) the appellant pursue with diligence all available remedies to obtain a stay of execution of the objectionable order . . . if the failure to do so creates a situation rendering it inequitable to reverse the orders appealed from.

Id. (quoting Frito-Lay, Inc. v. LTV Steel Co. (In re Chateaugay, Corp.), 10 F.3d 944, 952-53 (2d Cir. 1993)).

In setting forth the Chateaugay standard, the District Court emphasized the importance of the appellant seeking a stay of the order at issue, citing “fairness concerns” that arise from attempts to undo a reorganization that has already been substantially completed. Id.

In applying this standard, the District Court first observed that the appellant did not seek a stay of the Bankruptcy Court’s recognition order. Id. It then found that appellees had “argue[d] persuasively” that, on their restructuring effective date, their positions “comprehensively changed” and their “Cayman reorganization ha[d] been substantially completed.” Id. In particular, the District Court noted that the Debtors had “issued new equity and made cash distributions to creditors and entered into a new secured debt facility, as well as a long-term management services agreement.” Id. Given this change of circumstances, the District Court held there was a “strong presumption” that the appeal was moot on the ground that “the debtors’ reorganization has already been substantially completed.” Id. As the appellant failed to persuade the District Court that this “strong presumption” was overcome, the District Court dismissed her appeal as equitably moot. Id. at *6.

*          *          *

If you have any questions about any of the topics discussed in this opinion, please contact your Orrick attorney or any of the following attorneys:

Evan Hollander, Daniel Rubens, and Emmanuel Fua.

Orrick Continues to be Ranked a Top Bankruptcy and Restructuring Firm by The Deal

 

The Deal has published its 2017 bankruptcy and out-of-court restructuring league tables and again ranked Orrick as a top bankruptcy and restructuring law firm. The firm ranked:

Orrick’s Restructuring group has consistently earned an inclusion in the top ten bankruptcy legal advisor rankings in each quarter since 2015.

“We’re proud of Orrick’s continued top rankings in the Deal, which places us among the top tier bankruptcy firms internationally. Our rankings reflect the global nature of our work on some of the most complex bankruptcies and out of court restructurings of the year for both debtors and creditors”, said Raniero D’Aversa, Orrick’s Restructuring Practice Group Leader.  The group handled several high profile restructurings and bankruptcies in 2017, including the precedent setting $3.7 bn international restructuring for drill ship operator Ocean Rig, which included a Chapter 15 filing in New York and schemes of arrangement under Cayman Island law. Orrick also advised Toyota Motor Corporation in connection with its exposure in the highly publicized restructuring of airbag manufacturer Takata. The group also handled a unique bankruptcy proceeding involving tech start-up Lily Robotics, and advised lender groups and boards in the CHC and Seadrill bankruptcy cases. Other key matters have included advising creditors or trustees in major international restructurings for South Africa’s largest retailer, Edcon, French digital media group SoLocal, as well as French retailer Vivarte, among others.

The Deal’s Bankruptcy League Tables are the industry’s only league tables focused solely on active bankruptcy and out-of-court-restructuring cases. These rankings are compiled on a quarterly basis through comprehensive deal intelligence to identify the top law, crisis management, investment, and non-investment firms and professionals involved in bankruptcy transactions throughout the United States.  Firms are ranked based on advice provided to creditors, debtors and out-of-court restructurings.

The Rule in Gibbs: Safeguarding Creditors’ Rights or Aiding and Abetting “Hold Out” in Foreign Insolvencies?

There is an English common law rule that a debt governed by English law cannot be discharged or compromised by a foreign insolvency proceeding. This rule is derived from a Court of Appeal case: Antony Gibbs and sons v La Société Industrielle et Commerciale des Métaux (1890) 25 QBD 399.

The rule has been heavily criticised. Many do not consider it to be relevant in modern day cross-border insolvency proceedings following the continuing trend towards recognition of foreign insolvency proceedings (and their effects). As explained further below, some commentators see the rule as assisting creditors to “hold out” from participating in collective insolvency measures which are designed to benefit the creditor class as a whole.

The English court recently had the opportunity to review whether Gibbs still applied in Bakhshiyeva v Sberbank of Russia [2018] EWHC 59 (Ch). The court considered an application by a foreign representative to the English court on behalf of a debtor, International Bank of Azerbaijan, for a permanent stay on a creditors’ enforcement of claims in England under an English law governed contract contrary to the terms of the foreign insolvency proceeding. Under local law, the English creditors were purportedly bound. The Azerbaijani proceedings were not “terminal” liquidation proceedings and therefore, any stay would need to apply beyond the duration of the proceedings to properly bind the English creditors and to permanently give effect to the insolvency proceedings.

The foreign proceedings were conducted in Azerbaijan and had been recognised in England under the Cross-Border Insolvency Regulations 2006 (the “CBIR“) (implementing UNCITRAL Model Law). The CBIR are a procedural mechanism whereby foreign insolvency proceedings (conducted outside the EU) can be recognised and foreign representatives can seek “assistance” from courts in other jurisdictions to effect the insolvency proceedings (subject to any restrictions on the exercise of such power under local law).

The English High Court found that the rule in Gibbs did apply to prevent the court granting a permanent (or indefinite) stay on the enforcement of creditors’ English law governed contractual claims. Any stay granted by the court would be more than simply procedural and would go to the substance of creditors’ claims – the court would, in effect, be ordering the discharge of the creditor’s claim and was prohibited from doing this, following the rule in Gibbs.

The message for creditors with English law claims which are purportedly extinguished under a foreign (non-EU) insolvency process is therefore, to adopt a “hold out” position. Following the expiry of the foreign proceedings (and any related stay on creditor action), objecting creditors may then take steps to enforce English law governed contractual claims provided however, that they have not participated in the foreign insolvency proceedings (they may otherwise be deemed to have accepted the jurisdiction of the foreign proceeding).

We note many holders of English law governed bonds issued by the Greek government adopted a “hold-out” strategy knowing that the English courts would not recognise any provision of Greek law extinguishing or amending the sovereign debt.

The “territorial” nature of the rule in Gibbs is, arguably, “out of step” with trends in modern insolvency law. In the US, for example, in proceedings under Chapter 15 of the Bankruptcy Code (the US statute adopting UNCITRAL Model Law) (“Chapter 15“), US courts have enforced foreign court judgements made in foreign proceedings, including judgements which alter or vary US law governed debts or claims. Chapter 15 does however, include important public policy protections for creditors designed to forestall recognition of clearly abusive procedures.

The US has a longstanding policy of recognising restructurings of US law governed financings of foreign companies. The Supreme Court’s 1883 decision in the famous Gebhard case (Canada Southern Railway Co v Gebhard [1883] 109 US 527) set the precedent for US recognition of foreign restructuring processes in which Chief Justice Waite endorsed the recognition of the implementation of a Canadian scheme of arrangement with the words “under these circumstances the true spirit of international comity requires that schemes of this character, legalised at home, should be recognised in other countries“.

The “public policy” exception to recognition under Chapter 15 only applies in “exceptional circumstances” and includes, for example, circumstances where a creditor was denied due process and notice of the foreign insolvency proceedings of the debtor; and the denial of privacy rights. The fact that a creditor may make a more limited recovery, and the fact that the substantive law of the insolvency proceeding was not the same as US law, were not held to be “manifestly contrary” to public policy.

We note the Gibbs rule has been disapplied in the context of EU insolvency proceedings, on the basis that English courts recognise the jurisdiction of courts in respect of insolvency proceedings in Member States under the European Insolvency Regulation (“EIR“); and similar “public policy” exceptions apply. It is difficult to justify the radically different approach English courts take to non-EU insolvency proceedings particularly given the UK’s recent decision to leave the EU.

Our view is that as part of any withdrawal treaty of the UK from the EU, the parties should look to negotiate a process for mutual recognition of insolvency proceedings based on the EIR “recognition” approach. Looking outside of its relationship with the EU, it would also seem sensible for the UK to look to adopt an approach similar to US Chapter 15, for the UK courts to recognise foreign insolvency proceedings with safeguards for creditors to avoid the application of such rules only if limited public policy reasons exist to void the application of the foreign insolvency proceedings. The English court will want to avoid “re-litigating” issues dealt with under foreign insolvency proceedings, and should not examine actual recoveries made by creditors. However, a carve out on “public policy” grounds could protect English creditors if it captured circumstances where the process was evidently “discriminatory” to foreign (English) creditors.

We acknowledge there are strong arguments to retain the Gibbs rule. By entering an English law contract, creditors may feel strongly that they wish to retain the impartiality, commerciality and due process English courts are well known for.

As we near BREXIT, in this issue as in so many others, the UK has a decision to make: adopt English “exceptionalism” or take a more ‘universalist’ view implied by the recognition of foreign insolvency proceedings exemplified by the current arrangements under the EIR? The choice is looming.

Second Circuit Overturns Ruling on Cram-Down Interest Rates in Momentive

 

 

  • Adopts Sixth Circuit Test for Selecting Interest Rate
  • Affirms District and Bankruptcy Court Determinations Regarding Senior Debt Status and Disallowing Make-Whole Payments
  • Rejects Debtor’s Equitable Mootness Argument

On October 20, 2017, the Second Circuit issued its long awaited ruling[1] on several appeals from a U.S. District Court (Bricetti, J.) determination affirming the United States Bankruptcy Court (Drain, J.) in the MPM Silicones, L.L.C. (“Momentive”) bankruptcy case.[2]   The Second Circuit rejected the lower court rulings applying a “formula rate” of interest to cram-down paper issued to senior secured lenders under the Momentive plan of reorganization and remanded the case to the bankruptcy court with instructions to apply an “efficient market rate” of interest if one could be ascertained.  READ MORE