Harvard Law School Bankruptcy Roundtable

The Bankruptcy Roundtable

Promoting the dissemination of academic and practitioner views of current bankruptcy issues

Latest News from the Bankruptcy Roundtable

Judge Goldblatt Reconsiders What Constitutes“Consent” Post Purdue Pharma

By Michelle Saney (Squire Patton Boggs) Michelle Saney (Squire Patton Boggs) On June 27, 2024, the Supreme Court issued its long-awaited ruling regarding an increasingly heated debate—whether the United States Bankruptcy Code permits nonconsensual, third-party releases. In Harrington v. Purdue Pharma L.P., 144 S.Ct. 2071 (2024) (“Purdue Pharma”), the Supreme Court ruled that the Bankruptcy Code does not permit non-consensual third-party releases in a debtor’s plan of reorganization or liquidation.  Such plan provisions release affiliated non-debtor individuals and/or entities from liability owed to the debtor’s creditors.  However, the Supreme Court highlighted the limitations of its decision, noting that “[a]s important as the question we decide today are ones we do not.”  One of the questions that remain unanswered…

The Backstop Party

By Professor Vince Buccola (University of Chicago Law School), Adi Marcovich Gross (Columbia Law School and The Wharton School), and Professor Matthew McBrady (University of Virginia Darden School of Business) Vince Buccola, Adi Marcovich Gross, and Matthew McBrady Bankruptcy exit financing has become a site of recurring conflict in the intra-class creditor skirmishes that now so often mark corporate reorganization. When creditors in an ad hoc group sufficiently large to accept a plan of reorganization on behalf of an impaired class agree to underwrite, or “backstop,” the debtor’s plan-contemplated capital raise, creditors who hold identical claims but are excluded from the backstop group cry foul that the Bankruptcy Code bars their unequal treatment. All-or-nothing arguments have proved…

Independent Directors Properly Exculpated as Debtors’ Disinterested Fiduciaries Under Chapter 11 Plan, Southern District of Texas Bankruptcy Court Rules

By Brian S. Hermann, Jacob A. Adlerstein, Claudia R. Tobler and Lindsay A. Wasserman (Paul, Weiss, Rifkind, Wharton & Garrison) Brian S. Hermann, Jacob A. Adlerstein, Claudia R. Tobler and Lindsay A. Wasserman Chapter 11 plans commonly include exculpation clauses that protect a debtor’s key stakeholders that participate in the chapter 11 process from claims arising in connection with the bankruptcy case. Exculpation provisions are typically limited to key parties in the plan formulation process, such as the debtors, any official committee, certain lenders or security holders, and their related parties. They also exclude liabilities arising from gross negligence, fraud, and willful misconduct. Exculpation clauses have been challenged as impermissible under section 524(e) of the Bankruptcy Code. Section…

The World of Interlocutory Bankruptcy Appeals

By Bankruptcy Judge Scott C. Clarkson (Central District of California), Taylor Brown-Duncan, (Law Clerk), Sophie Jeltema (Chapman University Fowler School of Law, 3L), and Courtney Karp (Chapman University Fowler School of Law, 2L) Judge Scott C. Clarkson, Taylor Brown-Duncan, Sophie Jeltema, and Courtney Karp “The World of Interlocutory Bankruptcy Appeals,” (Clarkson, et al, 2025) serves as a response to a prior piece titled “Inconvenient Bankruptcy Appeals”. It aims to delve deeper into the perspectives of legal practitioners and judges concerning interlocutory appeals originating from bankruptcy courts. An interlocutory appeal challenges a legal decision before the trial court enters a “final order” that would typically trigger an appeal as of right. The fundamental issue with all interlocutory appeals…

Purdue: Impacts on Cross-Border Restructurings

By Thomas Kessler and Emily King (Cleary Gottlieb Steen & Hamilton LLP) Thomas Kessler and Emily King On June 27, 2024, the United States Supreme Court ruled in Harrington v. Purdue Pharma LP that the United States Bankruptcy Code does not authorize non-consensual third-party releases as part of a restructuring plan under Chapter 11. It was unclear immediately following Purdue whether (or how) the decision would impact the ability of foreign debtors to use Chapter 15 to enforce a foreign reorganization plan that contains a non-consensual third-party release. Chapter 15 of the Bankruptcy Code allows for recognition in the United States of foreign bankruptcy proceedings. Recognition of the proceeding allows a foreign representative of a debtor to…

Bankruptcy’s Redistributive Policies: Net Value or a “Zero-Sum Game”?

By Prof. Steven L. Schwarcz (Duke University School of Law) Prof. Steven L. Schwarcz Although federal bankruptcy law, epitomized by Chapter 11, has a pro-debtor—or at least, anti-liquidation—bias, no scholarship analyzes whether that bias creates net value or merely results in a zero-sum game that redistributes value from creditors to debtors. This Article, Bankruptcy’s Redistributive Policies: Net Value or a “Zero-Sum Game”? (forthcoming in 99 American Bankruptcy Law Journal (issue no. 2, Aug. 2025)), shows that the bias is due more to accidents of history, path dependence, and self-interested lobbying than to any reasoned analysis of value creation. The bias also is inconsistent with many foreign insolvency laws. The Article analyzes whether bankruptcy law should have such…

Chapter 15 Case Demonstrates Its Effectiveness as an Expedient Judicial Solution for Singaporean Insolvencies in the United States

By Amy Caton, Thomas Moers Mayer, Adam C. Rogoff, Megan M. Wasson, and Ashland J. Bernard (Kramer Levin) Amy Caton, Thomas Moers Mayer, Adam C. Rogoff, Megan M. Wasson, and Ashland J. Bernard In contrast with traditional commercial litigation, Chapter 15 proceedings can provide quick and effective solutions for managing issues that arise in connection with foreign insolvency proceedings, and for obtaining judicial relief in the United States. Chapter 15 of the Bankruptcy Code is designed to facilitate cross-border insolvency proceedings and provides a statutory framework for obtaining recognition of those proceedings within the U.S. Wayne Burt Pte. Limited, a Singaporean corporation, defaulted on $16 million in U.S. dollar-denominated loans purportedly secured by shares in an Indian subsidiary. Certain…

Do Rights Offerings Reduce Bargaining Complexity in Chapter 11?

By Professor Gunjan Seth (Marshall School of Business, University of Southern California) Professor Gunjan Seth One of the primary challenges faced by the courts after a firm files for bankruptcy is estimating the continuation value of the reorganized firm. Often there are large absolute errors in the court-determined valuations of the reorganized firm. These large valuation errors raise significant concerns regarding the efficiency of the Chapter 11 process. Further, valuation disputes between competing creditor classes are largely responsible for prolonging the length and costs of the bankruptcy process. In a recent paper, Seth (2022) documents how rights offerings have evolved as a market-based response to resolve the creditor bargaining frictions that are pervasive in bankruptcy. Rights offerings…

Rockville Centre Case Offers a Framework for Settling Mass Tort Bankruptcy Claims Post-Purdue

By Hon Robert D. Drain (ret.), Justin Winerman and Jamie Slocum (Skadden, Arps, Slate, Meagher & Flom LLP) Hon Robert D. Drain (ret)., Justin Winerman and Jamie Slocum After the U.S. Supreme Court’s Purdue decision, the resolution of claims by third parties against nondebtors, even if they relate closely to claims held by the debtor’s bankruptcy estate, cannot be imposed on affected third-party claimants under a plan of reorganization without the third-party’s consent. Purdue did not, however, obviate issues raised in bankruptcy cases by overlapping claims of debtors and third parties against nondebtors.  Two recent mass tort cases, In re the Roman Catholic Diocese of Rockville Centre and In re KFI Wind-Down Corp., illustrate how debtors, their…

False Venue Claims Signed Under Penalty of Perjury

By Professor Lynn M. LoPucki (University of Florida Levin College of Law) Professor Lynn M. LoPucki In a study of venue for the one hundred ninety-five large, public company bankruptcies filed from 2012 through 2021, I discovered nine cases (5%) in which the companies’ venue claims were in apparent conflict with what the debtors themselves stated on their petitions to be the locations of the companies’ principal places of business and principal assets. Eight of the nine proceeded to confirmation in an improper venue. The study analyzes the nine cases and concludes that (1) in seven of the nine cases, no apparent basis for the venue claims exists, (2) in one case, the basis for the venue…

Lender Liability At Forty: Thinking Through “Implied Covenant” Claims

By James Tecce and Bennett Murphy (Quinn Emanuel Urquhart & Sullivan) James Tecce and Bennett Murphy Lender liability cases invariably invoke the question of whether a lender who exercises a contractual right under a loan agreement can still be liable for breach of the “implied covenant of good faith and fair dealing.”  As the New York Court of Appeals has observed, “the implied covenant embraces a pledge that ‘neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” Singh v. City of New York, 40 N.Y. 3d 138, 145 (2023) (internal quotation marks and citations omitted).  Lender liability claims typically…

Beyond Traditional Financing: Exploring Equity-Linked DIP Strategies in WeWork and Enviva

By Shana A. Elberg, Moshe S. Jacob, and Bram A. Strochlic (Skadden, Arps, Slate, Meagher & Flom LLP) Shana A. Elberg, Moshe S. Jacob, and Bram A. Strochlic 2024 saw a rise in the use of equity-linked Debtor-in-Possession (DIP) financing in Chapter 11 cases. Examples from WeWork and Enviva illustrate how stakeholders are leveraging this innovative tool to drive broader reorganization strategies and outcomes rather than as a mechanism solely providing interim financing to fund a debtor’s operations during the pendency of its bankruptcy case. WeWork’s bankruptcy case highlights the significant role equity-linked DIP financing can play in a debtor’s overall restructuring transaction, with 80% of the reorganized equity provided through the DIP arrangement and outside the…

Getting to Yes: The Role of Coercion in Debt Renegotiations

By Professor Vince Buccola (University of Chicago Law School) and Professor Marcel Kahan (New York University School of Law) Professor Vince Buccola and Professor Marcel Kahan How parties to a loan agreement or bond indenture can change the terms of their deal is an important, if frequently neglected, aspect of debt financing. Bonds and loans represent a company’s obligation to repay a debt, with interest, over time. But only a small fraction of what goes into an indenture or a loan agreement relates directly to the debtor’s financial obligations. Most of the material, by word count and complexity, consists of rules that bind the debtor while the debt is outstanding and which are designed to increase, relative…

D&O Policy Coverage: Specificity Matters in Bankruptcy Context

By Charles Dale and Nathan Lander (Proskauer Rose LLP) Charles Dale and Nathan Lander A recent Texas bankruptcy court decision In re Walker County Hospital Corporation highlights the importance of broadly drafted bankruptcy exceptions in “Insured versus Insured” (IvI) exclusions in directors and officers (D&O) insurance policies. IvI exclusions are standard in D&O policies, barring insurance coverage for claims asserted by one insured party against another insured party. Without specific policy language, current and former directors and officers may be exposed to personal liability under IvI exclusions. After Walker County Hospital (the Hospital) filed for bankruptcy, the Hospital sued its former CEO for breach of fiduciary claims. The CEO tendered the claims to the Hospital’s D&O insurer…

When Defamation Comes to Bankruptcy Court

By Professor Christopher D. Hampson (University of Florida Levin College of Law) Professor Christopher D. Hampson Shortly after Alex Jones and Rudy Giuliani were found liable for massive defamation judgments, they filed for bankruptcy in Texas and New York, respectively.  These cases and others sparked a series of conversations in my hallway at the University of Florida Levin College of Law.  My colleague Lyrissa Lidsky, a leading expert in defamation (among many other subjects), asked if she could point journalists in my direction when they asked what would happen next. That kind of inquiry is familiar to bankruptcy lawyers.  Bankruptcy courts, as the emergency rooms of commercial law, must figure out how to deal with whatever gets…

Boston Generating: Second Circuit Triples Down on Its Holding that Transfers Made Under Securities Contracts Are Safe Harbored in Bankruptcy if the Debtor-Transferee is a Customer of a Financial Institution

By Dan T. Moss, Daniel J. Merrett, and Ben Rosenblum (Jones Day) Dan T. Moss, Daniel J. Merrett, and Ben Rosenblum Section 546(e) of the Bankruptcy Code’s “safe harbor” provision (which shields transactions from avoidance claims in bankruptcy of certain securities, commodity, or forward-contract payments) has long been a magnet for controversy. Several noteworthy court rulings have been issued in bankruptcy cases addressing the scope of the provision, including its limitation to transactions involving “financial institutions” as transferors or transferees, its preemption of avoidance litigation that could have been commenced by or on behalf of creditors under applicable non-bankruptcy law, and its application to non-public transactions. The U.S. Court of Appeals for the Second Circuit contributed one…

The Gift of Exit Financing

By Professor Robert W. Miller (University of South Dakota, Knudson School of Law) Professor Robert W. Miller Hostile restructurings have spilled over into bankruptcy court and exit financing is often the prize in the center of the arena.  Debtors no longer rely upon gifting, the traditional strategy for buying plan support.  Instead, they can replicate gifting’s benefits in a more defensible package by funneling discounted subscription rights to chosen constituencies as part of exit financing.  The strategic use of exit financing has been undertheorized as commentators have focused on rules of thumb and improved monitoring.  None recognize the need for market testing.  This Article: (i) explains exit financing’s proliferation as both a symptom of gifting’s demise and…

Inconvenient Bankruptcy Appeals

By Michael Cook (Schulte Roth & Zabel) Michael Cook Too many district courts and bankruptcy appellate panels (BAPs) have been refusing to review non-final (i.e., interlocutory) bankruptcy court orders for questionable reasons, according to this article by an experienced business bankruptcy litigator.  These courts, though, have the requisite jurisdiction under 28 U.S.C. §158(a)(3) and (b) (“…jurisdiction … with leave of the court, from interlocutory orders ….”).  Some courts for example, claim to lack discretion to review “certain interlocutory orders.  They have devised a test for their discretion that effectively makes their review a matter of their own convenience.  These courts typically rely on an inapplicable provision of the Judicial Code, 28 U.S.C. §1292 (b) (“. . .…

Creditor Coalitions in Bankruptcy

By Professor Jing-Zhi Huang, Professor Stefan Lewellen, and Professor Zhe Wang (Pennsylvania State University) Professor Jing-Zhi Huang, Professor Stefan Lewellen, and Professor Zhe Wang Bankruptcy is a high-stakes game of negotiation, and creditor coalitions have emerged as game-changers in Chapter 11 proceedings. Despite their growing influence, these coalitions remain largely unexplored in academic research. This study is the first to systematically investigate their role, addressing two critical questions: (1) what drives creditor coalition formation in bankruptcy, and (2) how do creditor coalitions affect key outcomes, such as recovery rates and delays in bankruptcy? Creditor coalitions, especially ad hoc committees that are formed voluntarily and flexibly by creditors, serve as powerful vehicles for coordination in the face of fragmentation among creditors. This study uses a theoretical framework…

Novel Issues in the Crypto Bankruptcy Cluster

By Jane VanLare and Jack Massey (Cleary Gottlieb Steen & Hamilton LLP) Jane VanLare and Jack Massey The past two years have seen a cluster of interrelated Chapter 11 bankruptcy cases involving five major U.S.-based cryptocurrency companies: Voyager Digital, a crypto brokerage; Celsius Network, a crypto exchange; FTX and Alameda Research (FTX), a crypto exchange and hedge fund respectively; BlockFi, a crypto lender; and Genesis Global, a crypto lender. The domino effect that ultimately led to the filing of these five major U.S.-based crypto companies began in 2022, after the crypto market fell by approximately two-thirds in the first half of the year, and the BVI-based crypto hedge fund Three Arrows Capital (3AC) collapsed. 3AC’s failure led…

Absolute Priority, Relative Priority, and Valuation Uncertainty in Bankruptcy

By Mark J. Roe (Harvard Law School) & Michael Simkovic (USC Gould School of Law) Professor Mark J. Roe and Professor Michael Simkovic Bankruptcy reformers advocate substituting relative priority for the prevailing absolute priority standard to promote a more consensual restructuring process. In deciding who does and does not get paid when there is not enough value to pay all creditors, bankruptcy’s prevailing absolute priority rule lines creditors up in rank-order, compensating highest ranking creditors in full before lower-ranking creditors get anything. By contrast, relative priority would account for the possibility that the firm could recover and become more valuable after the bankruptcy. Relative priority would compensate lower-ranking creditors for that chance of the debtor turning around,…

Judge Rules SPAC Trust Account Sacred for Public Shareholders and Not Property of the Estate

Editor’s Note: This will be the HLS BRT’s last post of the semester and we look forward to resuming posts in late January 2025. By: Brian Schartz, P.C., Christian O. Nagler, P.C., Anna G. Rotman, P.C., Tabitha De Paulo, and Mac A. Bank (Kirkland & Ellis) Brian Schartz, P.C., Christian O. Nagler, P.C., Anna G. Rotman, P.C., Tabitha De Paulo, and Mac A. Bank (clockwise from top left) In an important win for SPAC investors, the U.S. Bankruptcy Court for the Eastern District of Texas held that the express terms of a SPAC’s trust agreement control whether a SPAC trust account is “property” of a debtor’s estate. Prior to filing for chapter 11 relief, SPAC-debtor Financial Strategies…

BRT Book Corner: Unjust Debts; The Financial Restructuring Tool Set

Editor’s Note: The Harvard Law School Bankruptcy Roundtable is excited to bring readers the first entry in a new semi-annual series, the BRT Book Corner, which features new and exciting books in the Bankruptcy and Restructuring fields. Unjust Debts: How Our Bankruptcy System Makes America More Unequal By Professor Melissa B. Jacoby (University of North Carolina School of Law) Professor Melissa B. Jacoby How should people evaluate the bankruptcy system? My academic scholarship has reflected a variety of lenses, from federalism and separation of powers, to economic efficiency.  I also have observed the hybrid nature of big business bankruptcy – not entirely public or private, and the need for the system to balance a variety of objectives.…

Opting into opting out: Due process and opt-out releases

By Marshall S. Huebner and Kate Somers (Davis Polk & Wardwell, LLP) Marshall S. Huebner and Kate Somers Since the U.S. Supreme Court issued its ruling barring nonconsensual releases in Harrington v. Purdue Pharma L.P., 144 S. Ct. 2071 (2024), there has been an even greater focus on other types of releases with respect to third parties, including both opt-out and opt-in releases. Provided that factors are satisfied, opt-out releases (which are a mechanic on a ballot or notice of nonvoting status that allows claimants to check a box to opt out of nondebtor releases in a reorganization plan) will likely be the best available pathway for effectuating the will of – and providing the best available recovery…