By Jeffrey Pawlitz (Willkie Farr & Gallagher LLP)
In September 2025, the U.S. District Court for the Southern District of Texas issued a significant ruling in ConvergeOne Holdings, Inc., reversing the bankruptcy court’s confirmation of a Chapter 11 reorganization plan. The court held that the plan violated the Bankruptcy Code’s “equal treatment” requirement by granting certain lenders—but not others in the same creditor class—exclusive rights to participate in a lucrative backstopping arrangement.
Before filing for bankruptcy, ConvergeOne negotiated a restructuring agreement with secured lenders holding a majority of the debt (the “Majority Lenders”), who received the exclusive opportunity to purchase discounted equity and earn premium fees for backstopping a rights offering. The remaining “Minority Lenders” were excluded from both the negotiations and the investment opportunity, resulting in recoveries approximately 30% lower than their counterparts.
The District Court, drawing on the Supreme Court’s LaSalle decision and the Fifth Circuit’s Serta ruling, found that exclusive investment opportunities tied to creditor claims—without market testing or equal access—constitute impermissible unequal treatment under 11 U.S.C. § 1123(a)(4). The court emphasized that the opportunity to participate in the backstop was itself a valuable property right that was never offered to all similarly situated creditors.
The decision has significant implications for restructuring practice, suggesting that plan proponents must carefully evaluate the fairness of arrangements conferring special benefits on select creditors and may need to conduct meaningful market testing before offering exclusive investment opportunities.
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Editor’s Note: Harvard Law School Bankruptcy Roundtable will take a hiatus next week for spring break. We look forward to resuming posting on March 24th.