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

Creditors Strike Back: The Return of the Cooperation Agreement

In the low interest rate environment that followed the Great Recession, a fanatical demand for high-yield investments provided private equity firms an opportunity. Newfound borrower leverage facilitated credit documents with few creditor safeguards and various loopholes. Borrowers subject to these “sponsor-favorable” terms now had options in times of financial distress. More specifically, they had the option to strike first. 

The Administrative State in Bankruptcy

Bankruptcy is becoming increasingly a forum for debating public policy issues in fields such as cryptocurrency investment, health care delivery, pharmaceutical sales or climate change.

Loan-to-Own 2.0

The rise of convertible debtor-in-possession (“DIP”) financing is symptomatic of a paradigm shift in the control of large bankruptcy cases.

PSA Regarding the ABLJ

The American Bankruptcy Law Journal (ABLJ) and Temple University-Beasley School of Law are pleased to announce that the ABLJ is now entirely online and free. You can access current issues here. ABLJ has partnered with Temple, which is hosting the online platform. In addition to traditional first-rate bankruptcy scholarship by leading authorities, the new platform includes other content, notably author video interviews. ABLJ now also accepts submissions through Scholastica, although of course remains peer-reviewed and peer-edited. You can also subscribe to regular notifications of new content here. If you have questions, please contact editor-in-chief, Hon. Terrence Michael, at [email protected].

[Purdue Pharma Bankruptcy Series] The Rule of the Deal: Bankruptcy Bargains and Other Misnomers and Sorting Bugs and Features of Mass Tort Bankruptcy

The next few posts will address Purdue’s bankruptcy in particular and the issues raised by third-party releases and mass tort bankruptcies more generally. This week’s post features two articles, one about how the private bargaining and negotiations (the “rule of the deal”) for the Purdue Pharma Bankruptcy was problematic, and another about the flaws and features of the current state of mass tort bankruptcy, including about third party releases.

Chapter 11’s Inclusivity Problem

The core claim in our new paper is that Chapter 11 is not well adapted to selective restructuring.  We characterise this as Chapter 11’s inclusivity problem.

Bankruptcy Ruling Bolsters Uptier Transactions Challenges

James Newton, Geoffrey Peck, and Darren Smolarski authored an article for Law360 discussing the New York Supreme Court decision in ICG Global Loan Fund 1 DAC v. Boardriders Inc. on a Boardriders uptier transaction, which provides insight in the developing patchwork of federal and state court decisions trailing these transactions.

Standardizing and Unbundling the Sub Rosa DIP Loan

In many recent Chapter 11 cases, debtor-in-possession (DIP) loans determine reorganization plan payoffs at the outset of the case. Recent DIP loans are tied to plan terms including rights offerings, which give the DIP lender exclusive rights to purchase discounted equity in the reorganized company, and backstop fees, which pay the rights holder for committing to purchase them. Terms like these raise fears that DIP loan approval is being used to short circuit the Chapter 11 reorganization plan process–in bankruptcy parlance, that the DIP loan is a sub rosa plan. How should bankruptcy law manage this sub rosa DIP loan problem?

Death, Bankruptcy, and the Public Hospital

Legislators and administrators should consider bankruptcy as an option for public hospitals. Indeed, it may be the only path for survival for those hospitals and the only way to preserve healthcare for tens of millions of patients.

Silencing Litigation Through Bankruptcy

By Pamela Foohey (Yeshiva University – Benjamin N. Cardozo School of Law) and Christopher K. Odinet (University of Iowa – College of Law) Pamela Foohey Christopher K. Odinet Bankruptcy is being used as a tool for silencing survivors and their families and to obfuscate the truth. When faced with claims from multiple plaintiffs related to the same wrongful conduct that can financially or operationally crush the defendant over the long term—a phenomenon we identify as onslaught litigation—defendants harness bankruptcy’s reorganization process to draw together those who allege harm and pressure them into a swift, universal settlement. In doing so, they use the bankruptcy system to deprive survivors of their voice. They also seek to decrease information available…

Second Circuit Weighs In on Bankruptcy Code v. Chapter 11 Plan Impairment and the Solvent-Debtor Exception

By Dan B. Prieto and Mark G. Douglas (Jones Day) Dan B. Prieto Mark G. Douglas A handful of recent high-profile court rulings have considered whether a chapter 11 debtor is obligated to pay postpetition, pre-effective date interest (“pendency interest”) to unsecured creditors to render their claims “unimpaired” under a chapter 11 plan in accordance with the pre-Bankruptcy Code common law “solvent-debtor” exception requiring a solvent debtor to pay pendency interest to unsecured creditors. The U.S. Court of Appeals for the Second Circuit weighed in on this question in In re LATAM Airlines Grp. S.A., 55 F.4th 377 (2d Cir. 2022), petition for certiorari filed, No. 22-908 (U.S. Mar. 17, 2023). The Second Circuit ruled as a matter of first impression that a claim is “impaired” within the meaning of the…

Re-Examining First Day Trading Orders and Tax Status in Bankruptcy After Rodriguez

By Arvind Ravichandran (Cravath, Swaine & Moore LLP) [Editor’s Note: The following summary is a duplicate of the article’s introduction.] Arvind Ravichandran How should a federal bankruptcy court decide which of a federally regulated thrift or an FDIC controlled bank gets a federal tax refund? The Supreme Court of the United States’ answer in Rodriguez: Look to state law.  So unremarkable was this holding that it required approximately six pages of text and attracted no dissent or concurrence. As the Supreme Court said, the decision was not really about tax refunds, but was instead an opportunity to instruct lower courts on making federal common law. Indeed, the Tenth Circuit on remand reaffirmed its earlier decision almost entirely by citing to…

In Defense of Chapter 11 for Mass Torts

By Anthony J. Casey and Joshua Macey (University of Chicago Law School) Anthony J. Casey Joshua Macey Recent high-profile bankruptcies involve the use of Chapter 11 proceedings to resolve mass tort claims. In these cases, debtors have employed controversial maneuvers to facilitate global resolution and to minimize operational disruptions that can result from bankruptcy filings. Most notorious among these maneuvers are the third-party release (a key feature in every mass tort bankruptcy) and the two-step bankruptcy (a recent innovation in asbestos cases, also known as the “Texas” two-step). While most bankruptcy courts have blessed the use of Chapter 11 to resolve mass torts claims, scholars, policymakers, and media commentators have argued that bankruptcy proceedings provide an improper forum for…

And Another Lender Blocking Provision Bites the Dust, Texas Bankruptcy Court Rules

By Adam C. Rogoff and Ashland J. Bernard (Kramer Levin) Adam C. Rogoff Ashland J. Bernard One feature commonly seen in commercial lending transactions is a waiver of the borrower’s authority to file for bankruptcy without the consent of the lender. While such “blocking” provisions are generally upheld where the equity interest holders are the parties with such rights, they are generally unenforceable as a matter of public policy when such protection is given to a creditor with no meaningful ownership interest in the corporate debtor. In a recent decision issued in In re Roberson Cartridge Co., LLC, Case No. 22-20192 (RLJ), 2023 Bankr. LEXIS 588 (Bankr. N.D. Tex. March 7, 2023), the Bankruptcy Court for the Northern District of…

Bankruptcy Overload

By Laura Coordes (Arizona State University Sandra Day O’Connor College of Law) Laura N. Coordes Over the past few years, a growing number of scholars have sought to diagnose what is wrong with the U.S. bankruptcy system. Congress has held hearings in search of an answer. And many answers have emerged, ranging from lack of balance to outright lawlessness. In my article, Bankruptcy Overload, I contend that these problems are part of a larger issue: the bankruptcy system is overloaded. Those who use it, whether debtors or non-debtors, frequently seek to extract more out of a bankruptcy than the process can, practically and legally, provide. We have always asked the bankruptcy system to do a lot—indeed, the…

Sears Holding: A Case Study in Valuing Collateral in Chapter 11

By Mark G. Douglas and Oliver S. Zeltner (Jones Day) Mark G. Douglas Oliver S. Zeltner Valuation is a critical and indispensable part of the bankruptcy process. How collateral and other estate assets (and even creditor claims) are valued determines a wide range of issues, from a secured creditor’s right to adequate protection, postpetition interest, or relief from the automatic stay to a proposed chapter 11 plan’s satisfaction of the “best interests” test or whether a “cramdown” plan can be confirmed despite the objections of dissenting creditors. Depending on the context, bankruptcy courts rely on numerous different standards to value estate assets, including book, retail, wholesale, liquidation, forced-sale, going-concern, and reorganization value. The U.S. Court of Appeals…