I INSOLVENCY LAW, POLICY AND PROCEDURE

i Statutory framework and substantive law

Although individual states in the United States have laws that govern the relationship between debtors and their creditors, insolvency law in the United States is primarily dictated by federal law because Article 1, Section 8 of the United States Constitution grants Congress the power to enact ‘uniform Laws on the subject of Bankruptcies’.2 While over time several different bankruptcy statutes have been passed by Congress, the US bankruptcy regime is currently set forth in Title 11 of the United States Code3 (the Bankruptcy Code), which codified the Bankruptcy Reform Act of 19784 and subsequent amendments. The most recent significant amendment to the Bankruptcy Code was the 2005 Bankruptcy Abuse and Consumer Protection Act.5

The Bankruptcy Code is composed of nine chapters.6 Chapters 1, 3 and 5 provide the structural components that generally apply to all bankruptcy cases. Chapters 7, 9, 11, 12, 13 and 15 lay out general procedures specific to certain types of bankruptcies. Generally speaking, these specific types of bankruptcies are:

  • a trustee-administered liquidation (Chapter 7);
  • b municipality bankruptcy (Chapter 9);
  • c debtor-in-possession (DIP) managed reorganisation or liquidation (Chapter 11);
  • d family farmer and fisherman bankruptcies (Chapter 12);
  • e individual bankruptcies (Chapter 13);7 and
  • f cross-border cases (Chapter 15).

Generally speaking, with respect to plenary corporate bankruptcies, US insolvency law provides for two distinct regimes: a trustee-controlled liquidation under Chapter 7 and a DIP-controlled reorganisation or structured liquidation under Chapter 11.8 This article focuses on Chapter 11 proceedings. Below are certain key provisions of US insolvency law:

The automatic stay

One of the most important provisions of the US insolvency regime is the ‘automatic stay’, which is codified in Section 362 of the Bankruptcy Code. The automatic stay is a statutory injunction that applies immediately upon the commencement of a bankruptcy proceeding. Generally, the automatic stay operates to enjoin most creditors from pursuing actions or exercising remedies to recover against a debtor’s property. There are limited exceptions to the automatic stay and it can be modified by a court upon a showing of cause. The automatic stay provides the breathing room necessary for the debtor or trustee to assess and assemble all of the property of the estate without creditors seeking remedies to protect their own self-interests. Accordingly, the automatic stay allows for the preservation of the debtor’s assets and the maximisation of their value and for an equitable distribution of those assets to creditors.

Safe harbours

One important exception to the automatic stay is that it generally does not apply to contracts that are colloquially referred to as ‘financial contracts’. Specifically, the automatic stay does not apply to certain delineated counterparties’ ability to offset, net, liquidate, terminate or accelerate ‘securities contracts’,9 ‘commodities contracts’,10 ‘forward contracts’,11 ‘repurchase agreements’,12 ‘swap agreements’,13 or ‘master netting agreements’14 with a debtor, provided that the counterparty may be required to exercise its remedies promptly.15 In addition, a debtor may not avoid as a fraudulent transfer a transfer to such a counterparty under one of these contracts unless the transfer is intentionally fraudulent.

The absolute priority rule

Another key tenet of US insolvency law is the absolute priority rule. The absolute priority rule provides that creditors with higher priority must be paid in full before creditors of lower priority receive any distribution from the bankruptcy estate, and thereby ensures a ‘fair and equitable’ distribution of the debtor’s property consistent with the priorities under applicable non-bankruptcy law. As a result, in the absence of consent, secured claims must be paid in full from collateral before general unsecured creditors receive any recovery. Similarly, because equity holders have the lowest priority, in the absence of consent, they cannot receive any distribution until all creditors have received payment in full on account of their allowed claims. Consent to the payment of a junior class can be obtained through a vote of the senior class on a plan of reorganisation.16

Avoidance actions

The Bankruptcy Code also provides a number of procedures that allow the debtor or trustee to avoid a pre-bankruptcy transfer of property from the bankruptcy estate. This allows the debtor to maximise the value of the bankruptcy estate and prevent a depletion of the estate prior to the commencement of the bankruptcy proceeding that may favour certain creditors over others. These protections are found in Chapter 5 of the Bankruptcy Code. The most commonly used of these actions are:

  • a avoidance of preferential transfers, which enables an insolvent debtor, subject to certain defences, to avoid and recover payments based on antecedent debt made to creditors within the 90 days prior to the debtor’s filing for bankruptcy – up to one year for payments made to insiders of the debtor;17
  • b avoidance of fraudulent transfers, which enables the debtor to avoid and recover transfers of property that were actually fraudulent or were made while the debtor was insolvent and for less than reasonably equivalent value;18 and
  • c avoidance of unperfected security interests, which enables a debtor to avoid liens on property if such liens were not perfected under applicable non-bankruptcy law prior to the commencement of the bankruptcy case.19
ii Policy

The goal of US insolvency law is to provide maximum return to creditors (and, if possible, equity holders) of the debtor and, in that context, to reorganise rather than liquidate business debtors to preserve employment and to realise the ‘going concern surplus’ of reorganisation value over liquidation value. This is accomplished by reorganising a debtor corporation under the provisions of Chapter 11 of the Bankruptcy Code. However, if a reorganisation is not possible – or if it would not result in a maximisation of value for creditors – the debtor company can be liquidated either under Chapter 11 or Chapter 7 of the Bankruptcy Code. Chapter 7 transfers the control of the liquidation process from the debtor’s management, who are likely to have greater familiarity with the assets and their value, to a trustee appointed by the United States Trustee20 or elected by the debtor’s creditors. Chapter 7 liquidations usually result in lower recoveries for creditors. Therefore, companies are more likely to be liquidated under Chapter 7 if there are not sufficient funds in the estate or available to the estate to run a Chapter 11 process.

iii Insolvency procedures

As discussed above, the Bankruptcy Code provides for two main types of insolvency proceedings available to businesses with assets in the United States: Chapter 7 and Chapter 11.

Chapter 7

Chapter 7 is a trustee-controlled liquidation. The goal of Chapter 7 is to ensure the most efficient, expeditious and orderly liquidation of the debtor’s assets to be distributed to the creditors and equity holders. Companies cannot reorganise under Chapter 7. The Chapter 7 liquidation procedure is administered by a Chapter 7 trustee either selected by the United States trustee or by an election conducted by certain creditors. The Chapter 7 trustee is responsible for realising upon all of the property of the estate and coordinating the distribution of such property or proceeds of sales of such property.

Chapter 11

Chapter 11 provides for an insolvency proceeding in which the directors and management of the debtor company remain in control (the DIP) unless a trustee is appointed for cause. Chapter 11 proceedings allow for the reorganisation of the debtor’s operations and capital structure in the hope that the company will emerge from the bankruptcy process as a healthier, reorganised company. Chapter 11 gives the debtor the exclusive right to propose a plan of reorganisation for the first 120 days after commencement of the bankruptcy proceedings, and this date may be extended until 18 months after the order for relief (the petition date of a voluntary case) in the case if the debtor is making progress on a plan of reorganisation and can show cause why the court should extend the exclusivity period.21 The plan of reorganisation provides for how the debtor’s assets will be distributed among the classes of creditors and equity holders. It is also possible for a debtor to liquidate its assets through Chapter 11, which is typically a more structured liquidation than one under Chapter 7.

The culmination of a Chapter 11 proceeding is the filing of the plan of reorganisation. The Chapter 11 plan provides how creditors’ claims will be treated by the estate. Under the Chapter 11 plan creditors and shareholders are divided into classes of holders sharing substantially similar claims or interests. Chapter 11 plans must meet certain standards to be confirmed. Even if a plan is accepted by the requisite vote of all impaired classes, it must be found by the court to be in ‘the best interests of creditors’ (providing each dissenting class member with at least what would have been recovered in a liquidation). As to a class that rejects the plan, the plan must satisfy the Bankruptcy Code’s ‘fair and equitable’ requirement (described above).

The plan of reorganisation is submitted to a vote of the various creditor and shareholder classes. If at least one class that stands to receive less than their asserted claim (an ‘impaired’ class) votes in support of confirmation, excluding insider yes votes, the plan can be confirmed over the dissent of another impaired class. Dissenting classes can thus be ‘crammed down’ so long as the plan is fair and equitable and does not discriminate among similarly situated creditors. Once the plan is approved by the necessary stakeholders, a court can confirm a plan so long as certain other prerequisites of Section 1129 of the Bankruptcy Code are satisfied.

Chapter 15

Chapter 15 is the Bankruptcy Code’s codification of the United Nations Commission on International Trade Law (UNCITRAL) Model Law and allows a foreign debtor, through its ‘foreign representative’ to commence an ancillary proceeding in the United States to support its foreign insolvency proceeding.

iv Starting proceedings

As set forth above, the US Bankruptcy Code provides for different types of insolvency proceedings. Not all of these proceedings are available for all types of companies. Specifically, insurance companies and banking institutions cannot file for Chapter 7 or Chapter 11 bankruptcy; a railroad can be a debtor under Chapter 11 but not Chapter 7, and stockbrokers and commodity brokers can file for bankruptcy under Chapter 7 but not Chapter 11. Regardless of the type of bankruptcy case, under Section 301(a) of the Bankruptcy Code, a debtor voluntarily commences a plenary insolvency proceeding by filing a petition with the bankruptcy court.

A bankruptcy proceeding can also be commenced against a debtor company, which is known as an ‘involuntary’ bankruptcy case. An involuntary case is commenced upon the filing of a petition with the bankruptcy court by three or more holders22 of non-contingent, undisputed claims, and such claims aggregate at least US$15,775 more than the value of any lien on property of the debtor securing such claims.23 A bankruptcy court will order relief against the debtor in an involuntary case only if the debtor is generally not paying its debts as they become due, unless such debts are the subject of a bona fide dispute as to liability or amount,24 or if a custodian as described in Section 303(h)(2) of the Bankruptcy Code has been appointed.

A Chapter 15 case is commenced when the foreign representative of the debtor company files a petition for recognition of the foreign proceeding with the US bankruptcy court.25

v Control of insolvency proceedings

Under Chapter 7, the insolvency proceeding is controlled by a trustee who is appointed by the United States Trustee or elected by the debtor’s creditors to administer the debtor’s assets. The ‘Chapter 7 trustee’ is responsible for, among other things, ‘collect[ing] and reduc[ing] to money the property of the estate for which such trustee serves, and closes such estate as expeditiously as is compatible with the best interests of parties in interest’.26 Although the Chapter 7 trustee can continue business operations for a short period if value is maximised by doing so, generally, once a Chapter 7 trustee has been appointed, the debtor company is expeditiously liquidated.

Chapter 11 proceedings allow for the debtor’s existing management and directors to stay in place and operate the business during the bankruptcy case. For this reason, a debtor in a Chapter 11 proceeding is referred to as the ‘DIP’. The board of directors’ primary duties in connection with an insolvency proceeding are the same as they are outside bankruptcy27 – to maximise the value of the company.28 The key distinction is that when a company is insolvent, the creditors, not the shareholders, are the residual beneficiaries of the board’s fiduciary duties to the corporation and are, thus, able to bring actions for breach of fiduciary duty.29 If it is in the best interests of the estate and its creditors, a trustee may be appointed to replace the DIP and administer a Chapter 11 case.30

During a Chapter 7 or Chapter 11 case, the DIP or trustee may take actions that are in the ordinary course of the debtor’s business without approval of the bankruptcy court. Actions after entry of the order for relief outside the ordinary course of business are subject to bankruptcy court approval.

In the United States, bankruptcy courts are courts of limited jurisdiction. This is because, unlike federal district and circuit courts, bankruptcy courts were not created under Article III of the United States Constitution. Instead, Congress created the bankruptcy courts because they were ‘necessary and proper’ to effectuate Congress’s enumerated powers to enact bankruptcy law. For this reason, bankruptcy courts may only oversee matters that are ‘core’ to the bankruptcy case unless the parties knowingly and voluntarily consent to adjudication of a ‘non-core’ matter by the bankruptcy court. Without consent, matters that are not ‘core’ to the insolvency proceeding must be decided by a federal district court. Appeals of bankruptcy court decisions are generally heard, in the first instance, by the federal district court sitting in the same jurisdiction as the applicable bankruptcy court.31 Bankruptcy court jurisdiction is the subject of much debate under a line of recent Supreme Court cases.32

Among other things, the bankruptcy court manages filing deadlines, hears evidence on contested issues and issues orders regarding requests for relief by the parties. Nevertheless, and despite the involvement of the court, many aspects of the bankruptcy process are negotiated by the parties outside the courtroom and the DIP or trustee is free to enter into settlement agreements, which are then subject to the approval of the bankruptcy court.33

vi Special regimes

Securities broker-dealers are not eligible for relief under Chapter 11. Instead, insolvent broker-dealers may liquidate under Chapter 7 of the Bankruptcy Code,34 but are more likely to be resolved in a proceeding under the Securities Investor Protection Act of 1970 (SIPA).35 SIPA proceedings are liquidation proceedings, and upon commencement of the SIPA proceedings, the broker-dealer will cease to conduct business as a broker-dealer, subject to certain limited exceptions. In SIPA proceedings, a trustee (the SIPA Trustee) will take control of all property, premises, bank accounts, records, systems and other assets of the broker-dealer and displace management. The SIPA Trustee’s primary duties will be to marshal assets, recover and return customer property (including through effectuating bulk account transfers to a solvent broker-dealer) and liquidate the broker-dealer.

In SIPA proceedings, the provisions of Chapters 1, 3 and 5 and Subchapters I and II of Chapter 7 of the Bankruptcy Code will also apply, to the extent consistent with SIPA, and the SIPA Trustee will generally be subject to the same duties as a trustee under Chapter 7 of the Bankruptcy Code with certain limited exceptions regarding securities that are property of the customers of the broker-dealer. If the broker-dealer is a registered futures commission merchant under the Commodity Exchange Act of 1936,36 the SIPA Trustee will have additional obligations under the Part 190 regulations37 promulgated by the Commodity Futures Trading Commission, with respect to any commodity customer accounts that have not been transferred to another futures commission merchant prior to the filing date.

Although bank holding companies can file for Chapter 11 relief, their subsidiary depository institutions are not eligible for relief under the Bankruptcy Code, and are typically resolved by the Federal Deposit Insurance Corporation (FDIC) under the Federal Deposit Insurance Act.38 The FDIC has the authority to market a failed depository institution for sale to another depository institution, or the FDIC can insert itself as a receiver, close the bank and liquidate its assets to pay off creditors. The powers of the FDIC as receiver are very similar to those of a trustee in bankruptcy.39

Additionally, the Dodd–Frank Wall Street Reform and Consumer Protection Act40 established the Orderly Liquidation Authority (OLA), which provides that the FDIC may be appointed as receiver for a top-tier holding company of a failing financial institution that poses a systemic risk to financial stability in the United States. OLA sets forth the procedures that the federal government can take to cause the wind-down of financial institutions that were once considered ‘too big to fail’. Pursuant to OLA, the FDIC can exercise many of the same powers it has as a bank receiver to liquidate systemically risky financial institutions. Moreover, under the Dodd-Frank Act, institutions that may be subject to OLA must provide the FDIC with resolution plans (commonly known as ‘living wills’), to serve as road maps in the event the financial institution requires resolution.

State law governs all regulation of insurance companies, including the resolution of insolvent insurance companies.41

The Bankruptcy Code has mechanisms for dealing with the insolvency proceedings of corporate groups and there is no special regime to address these types of filings. If multiple affiliated companies in the same corporate group seek relief under the US Bankruptcy Code, they will file separate bankruptcy petitions but will often seek joint administration of the various bankruptcy proceedings, meaning that the bankruptcy cases of each member of the group will be overseen by the same judge, which provides for greater efficiency in the administration of the cases. Importantly, joint administration does not mean that the assets and liabilities of the group will be combined. Rather, corporate separateness will be observed despite the joint administration of the cases, unless there is cause to breach corporate separateness and ‘substantively consolidate’ the assets and liabilities of the debtor.

vii Cross-border issues

As part of the 2005 Bankruptcy Abuse and Consumer Protection Act, the United States enacted Chapter 15 of the Bankruptcy Code, which is based on the UNCITRAL Model Law on Cross-Border Insolvency (the Model Law).42 Chapter 15 governs how a US court should treat a foreign insolvency proceeding when no plenary proceedings have been commenced in the United States and provides a mechanism for the cooperation between the US court and the foreign court overseeing a debtor’s plenary insolvency proceeding. Generally, Chapter 15 allows for the commencement of an ancillary proceeding upon recognition of the debtor’s foreign proceeding. Once the foreign proceeding is recognised by the US bankruptcy court, the automatic stay applies to the debtor and the property of the debtor that is within the territorial jurisdiction of the United States43 and the debtor’s foreign representative enjoys certain powers and privileges under the Bankruptcy Code, such as the right to intervene in any court proceeding in the United States in which the foreign debtor is a party, the right to sue and be sued in the United States on the foreign debtor’s behalf, the authority to operate the debtor’s business and the authority to initiate avoidance actions in a case pending under another chapter of the Bankruptcy Code.

The bar for accessing plenary proceedings in the US bankruptcy courts is relatively low. A company can be eligible to commence a Chapter 11 proceeding in a US bankruptcy court so long as it is incorporated or has any property or operations in the United States. Because of the perceived debtor-friendliness of US bankruptcy courts and the courts’ vast experience in restructuring large multinational companies, many multinational companies are filing for Chapter 11, even if their principal place of business, or centre of main interest, is located outside the United States. This trend has been particularly prevalent in the shipping industry. For example, the Taiwan-based TMT Group opened an office in Houston only a few days before filing for Chapter 11 protection in the United States Bankruptcy Court for the Southern District of Texas.44

II INSOLVENCY METRICS

Since the global financial crisis, which saw gross domestic product adjusted for inflation (real GDP) drop 2.8 per cent from 2008 to 2009, the US economy has experienced a period of slow growth. Real GDP increased in the fourth quarter of 2016 at an average annual rate of 2.1 per cent and in the first quarter of 2017 at an average annual rate of 1.4 per cent.45 Furthermore, reported unemployment continues to abate: the unemployment rate for June 2017 was 4.4 per cent, down from 4.9 per cent in June of the previous year and from its October 2009 high of 10 per cent.46

Additionally, credit has been readily available to US businesses. In 2015, US corporations issued approximately US$1.49 trillion in bonds, down from the US$1.61 trillion issued in 2015 but in line with the US$1.49 trillion issued in 2014.47 During the first seven months of 2017, over US$1 trillion worth of bonds have been issued.48 Average interest rates have risen slightly from their historic lows; the 10-year Treasury rate is currently around 2.27 per cent and has ranged between 2.14 per cent and 2.62 per cent in the current calendar year,49 while in 2016, the rate ranged between 1.38 per cent and 2.60 per cent.50 It is currently anticipated that interest rates will gradually rise in 2017 and 2018, as the Board of Governors of the Federal Reserve System (the Federal Reserve Board) continues scaling back its accommodative policy.51

US equity markets, however, experienced a slowdown in 2015 and 2016, caused in part, according to some commentators, by a combination of dimming global-growth expectations, rich valuations and general uncertainty regarding the Federal Reserve’s near-term plans for its quantitative easing programme.52 Specifically, US equity and equity-related proceeds totalled US$180 billion on 716 deals in 2016,53 which represents a 21.5 per cent decrease in proceeds compared to the US$229.5 billion raised in 201554 and approximately 16 per cent fewer deals than the 848 in 2015.55 US equity and equity-related proceeds in 2015 were approximately 16 per cent less than the US$258.5 billion raised in 201456 and 1.9 per cent less than the US$233.8 billion raised in 2013.57 Similarly, the number of deals in 2016 was 29 per cent less than the 1,008 in 2014 and 24.6 per cent less than the 949 in 2013.58

US corporate default rates have fallen since the first half of 2016. Moody’s measured the US speculative-grade default rate for the second quarter of 2017 at 3.2 per cent,59 compared to default rates of 3.9 per cent60 in the first quarter and 4.7 per cent in the second quarter of 2016.61 Similarly, Moody’s indicated that the leveraged loan default rate for April and May of 2017 was 2.1 per cent and 1.5 per cent respectively,62 compared to the 2016 first quarter rate of 2.8 per cent.63

Although the frequency of business filings remains well below its peak its peak in 2010,64 many businesses continue to seek bankruptcy relief owing to significant challenges in sectors of the US economy. In 2016, for example, a total of 99 public companies, with aggregate pre-petition assets of approximately US$105 billion, filed Chapter 7 or Chapter 11 bankruptcy proceedings,65 up from the 79 such companies that filed in 2015, with aggregate pre-petition assets of approximately US$77.1 billion.66 Many of the most significant filings in recent years have involved the energy industry – including SunEdison, Inc (US$11.5 billion in assets), Peabody Energy Corporation (US$11 billion in assets) and LINN Energy, LLC (approximately US$10 billion in assets).67 As discussed in greater detail below, the retail industry also suffered a significant downturn in 2017 owing, some commentators say, to the inability of many ‘brick-and-mortar’ retailers to adapt to the rapid proliferation of e-commerce and online shopping trends.68 The energy and retail industries have continued to produce the most significant bankruptcies in 2017.69

Some 157 companies commenced Chapter 15 proceedings in the 12 months ending on 31 March 2017,70 which is a 52.4 per cent increase from the 103 Chapter 15 cases that were initiated during the 12 months ending on 31 March 2016.71

III PLENARY INSOLVENCY PROCEEDINGS

i Avaya Inc

Avaya Inc, headquartered in Santa Clara, CA, is a global provider of contact centre, unified communications and networking products and services. Avaya serves over 200,000 direct and indirect customers, including multinational enterprises, small and medium-sized businesses as well as government organisations operating in a diverse range of industries.72

On 9 January 2017, Avaya Inc, together with certain of its affiliates, filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the Southern District of New York. Avaya’s funded debt obligations, totalling more than US$6 billion, included:

  • a a domestic ABL credit facility of approximately US$55 million;
  • b a foreign ABL credit facility of approximately US$50 million;
  • c a secured cash flow credit facility consisting of approximately US$3.235 billion in outstanding term loans;73
  • d approximately US$1.299 billion outstanding in first lien notes; and
  • e approximately US$1.384 billion outstanding in second lien notes.74

The original plan of reorganisation submitted by Avaya in April 2017 was not supported by certain large holders of Avaya’s first or second lien debt, some of whom believed that Avaya had not adequately engaged with various restructuring counterproposals submitted to it after the original plan was filed.75 In September 2017, Avaya announced that over two-thirds of its first lien lenders had agreed to a proposal memorialised in its first amended plan support agreement.76 Avaya’s second lien noteholders continue to object to the amended plan based on alleged ‘wildly disparate treatment’ of the three unsecured classes of claims and the breadth of certain releases provided thereunder. As of the date of this publication, the confirmation hearing is scheduled to occur on 15 November 2017.

ii Bonanza Creek Energy, Inc

Bonanza Creek Energy, Inc (Bonanza), headquartered in Denver, Colorado, is an independent oil and natural gas company engaged in the acquisition, exploration, development and production of oil and associated liquids-rich natural gas in the United States. Bonanza’s assets and operations are concentrated primarily in northern Colorado, including in (1) the Wattenberg Field, focused on the Niobrara and Codell formations, and (2) the North Park Basin in Jackson County, Colorado. In addition, Bonanza owns and operates oil-producing assets in southern Arkansas, including assets located in the Dorcheat Macedonia Field and the McKamie Patton Field.77

On 4 January 2017, Bonanza and six of affiliates filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the District of Delaware. As of the petition date, the debtors funded debt obligations included:

  • a secured indebtedness, comprised of US$191.7 million in outstanding obligations under its reserve-based lending facility; and
  • b unsecured indebtedness comprising US$800 million in senior notes.78

The market forces affecting the broader oil and natural gas industry proved particularly challenging for Bonanza, which competes with a substantial number of companies that have greater resources as well as a number of sources of alternative energy and fuel.79 Despite a series of measures taken to right size the company in light of the worsening macroeconomic environment, Bonanza ultimately sought Chapter 11 protection.

On 7 April 2017, Bonanza received court approval for a bankruptcy plan, which provided for the equitisation of approximately US$867 million of Bonanza’s unsecured debt, the elimination of over US$50 million in annual cash interest and the infusion of US$200 million in new capital pursuant to a rights offering backstopped by certain of Bonanza’s pre-petition creditors. The plan was accepted by 100 per cent of the ballots of all voting classes, and Bonanza emerged from bankruptcy on 28 April 2017.80

iii Memorial Production Partners LP

Memorial Production Partners LP (MEMP) is an oil and gas company headquartered in Houston, Texas, primarily engaged in the acquisition, development, and production of oil and natural gas properties. MEMP’s oil and natural gas assets consist primarily of producing oil and natural gas properties located in Texas, Louisiana, Wyoming, and offshore Southern California. Most of MEMP’s oil and natural gas properties are located in large, mature oil and natural gas reservoirs with well-known geologic characteristics and long-lived, predictable production profiles and modest capital requirements. In addition to its interests in oil and gas reserves, a significant asset of MEMP prior to the petition date was its portfolio of in-the-money hedges, and maintaining a robust hedge portfolio has been a significant component of MEMP’s business since its inception.81

On 16 January 16, 2017, MEMP filed for bankruptcy protection under Chapter 11 in the US Bankruptcy Court for the Southern District of Texas Houston Division. As of the petition date, the debtors funded debt obligations included:

  • a secured indebtedness comprising US$457.4 million outstanding under their reserve-based lending facility; and
  • b senior unsecured notes totalling approximately US$1.12 billion.82

On the first day of the confirmation hearing, certain existing equityholders opposed the debtors’ plan valuation, asserting that total enterprise value was US$1.651 billion in contrast to the US$800 million estimate provided by the debtors’ financial advisers. After a series of hard-fought negotiations in which, among other things, the debtors’ management team agreed to relinquish certain benefits under the management incentive plan in exchange for the support of old equity, the debtors’ second amended plan was confirmed on 14 April 2017.83 MEMP emerged from Chapter 11 on 4 May 2017, as Amplify Energy Corp. with approximately US$430 million in total debt outstanding and total liquidity of US$72 million.84

iv Gymboree

The Gymboree Corporation is a speciality retailer that operates stores that sell high-quality apparel and accessories for children under the Gymboree, Gymboree outlet, Janie and Jack and Crazy 8 brands. Headquartered in San Francisco, California, the company’s products and services expanded to approximately 1,300 company-operated stores85 and outlets in the US and globally, and are available through retail stores, wholesale channels and e-commerce websites. Gymboree’s operations related to its products include designing, sourcing, marketing and selling its own merchandise.86

On 11 June 2017, Gymboree and certain of its affiliates filed for bankruptcy protection under Chapter 11 in the US Bankruptcy Court for the Eastern District of Virginia.87 As of the petition date, the debtors reported approximately US$755 million in total assets and US$1.36 billion in total liabilities,88 with funded obligations that include:

  • a a senior secured asset-based revolving credit facility of US$18 million;
  • b asset-based term loan of US$47.5 million;
  • c senior secured term loan of US$788.8 million; and
  • d unsecured senior notes of US$171 million.89

According to Gymboree, it declared bankruptcy because of adverse macro-trends, discussed at greater length in Section V, that are typical of the challenges facing the broader retail industry, including the general shift away from brick-and-mortar stores to online retail channels.90

Gymboree’s restructuring plan was confirmed on 7 September 2017, on a fully consensual basis. The plan provides for a reduction of Gymboree’s debt by US$1 billion, an infusion of up to US$115 million in new money and a rationalisation of the debtors’ retail footprint.91

v Payless

Payless is an everyday footwear retailer with a strategy of selling low-cost, high-quality, fashion-forward family footwear. Its branding relationships consists of brand licence partnerships, design partnerships, and its own exclusive brands, such as American Eagle and Brash. Headquartered in Topeka, Kansas, Payless operates in over 30 countries through its three business segments: North America, Latin America, and franchised stores. Payless carries out its business model by identifying and developing on-trend merchandise, developing strong relationships with branding partners and maintaining an overseas sourcing network that can develop and produce products at a scale and cost necessary to serve Payless’ customers.92

On 4 April 2017, Payless and several of its affiliates filed for bankruptcy protection under Chapter 11 in the US Bankruptcy Court for the Eastern District of Missouri.93 As of the petition date, the debtors funded debt obligations included:

  • a an asset-backed revolving credit facility of US$187 million;
  • b a first lien term loan facility of US$506 million;
  • c a second term loan facility of US$145 million; and
  • d trade claims of approximately US$240 million.94

The events leading to Payless’s bankruptcy involved inventory over-purchases from ‘antiquated systems and processes’ followed by inventory flow disruptions, industry-wide declines in sales and traffic, and a shift away from brick-and-mortar stores to online retail channels, all which put pressure on Payless’s liquidity and profitability.95

The debtors’ restructuring plan was accepted by every voting class, and approved by over 99.2 per cent in amount and 96.1 per cent in number of creditors who voted on it96 and confirmed by the bankruptcy court on 24 July 2017. Pursuant to the plan, Payless’s pre-petition first lien and second lien lenders received 100 per cent of the new equity in reorganised Payless on account of their claims.97 General unsecured classes recovered approximately 18.1 per cent to 22.1 per cent, far more than any amounts such creditors would have received in a liquidation scenario, as contended by Payless.98 Payless emerged from Chapter 11 on 10 August 2017.

vi Rue21

Rue21 is a specialty fashion retailer of girls’ and guys’ apparel and accessories. Its brands include rue21, true, etc!, ruebeauté!, Carbon, rue+, and ruebleu, each of which focus on providing quality yet affordable young adult clothing to teenagers and young adults in small and mid-size markets. Headquartered in Warrendale, Pennsylvania, the company sells its merchandise in 48 states through its online store and its 1,179 brick-and-mortar stores located in strip centres, regional malls, and outlet centres. Rue21’s operations related to its products involve designing, sourcing, marketing, and selling its own merchandise.99

On June 11, 2017, rue21 and several of its affiliates filed for bankruptcy protection under Chapter 11 in the US Bankruptcy Court for the Western District of Pennsylvania.100 As of the petition date, the debtors funded debt obligations included:

  • a a senior secured asset-based revolving credit facility of US$72 million;
  • b senior secured term loan of US$521 million; and
  • c unsecured senior notes of US$239 million.101

According to management, rue21 filed for bankruptcy because of general trends faced by the retail industry, such as a decline in in-store transactions because of online shopping, and trends more specific to rue21, such as an evolution of customer tastes.102

Rue21’s plan reflects the restructuring support agreement that was executed by the debtors and its lenders holding 96.8 per cent of the company’s secured term loan and 60.2 per cent of the company’s unsecured notes.103 The plan calls for a US$125 million exit ABL facility and US$50 million exit term facility, with the US$100 million roll-up portion of the DIP term facility exchanged for 33 per cent of the reorganised equity, pre-petition lenders to receive 63 per cent, and general unsecured creditors to receive 4 per cent.104

vii Toys ‘R’ Us

Toys ‘R’ Us, Inc is a speciality retailer of toys and baby products. The company sells products in the baby, core toy, entertainment, learning and seasonal categories through its retail locations and the Internet. The company operates 1,602 stores and licensed an additional 212 stores. These stores are located in 37 countries and jurisdictions around the world under the Toys ‘R’ Us, Babies ‘R’ Us and FAO Schwarz banners. In addition, the company operates Toys ‘R’ Us Express stores, smaller format stores primarily open on a short-term basis during the holiday season. The company also owns and operates websites, including Toysrus.com, Babiesrus.com, eToys.com, FAO.com and toys.com, as well as other internet sites.105

On 18 September 2017, Toys ‘R’ Us filed for Chapter 11 in the US Bankruptcy Court for the Eastern District of Virginia, Richmond Division.106

IV ANCILLARY INSOLVENCY PROCEEDINGS

i Oi

Oi SA is a Brazilian telecommunications company that, along with certain of its affiliates, filed for Brazil’s largest ever bankruptcy in June 2016, listing approximately 65.4 billion reais (US$19.26 billion) in outstanding debt as of the filing date. Shortly thereafter, the debtors filed a Chapter 15 petition with the US Bankruptcy Court for the Southern District of New York seeking, among other things, recognition of the Brazilian proceeding as a ‘foreign main proceeding’ under Chapter 15 of the Bankruptcy Code. 107 Although Oi has no sizeable assets in the United States, it has strategic commercial agreements with large US telecom carriers related to interconnection fees.108

In April 2017, a Dutch court ordered that two of Oi’s subsidiaries enter bankruptcy and begin proceedings to liquidate and repay creditors,109 a ruling which was affirmed on appeal by the Dutch Supreme Court in July 2017. The two subsidiaries ordered to liquidate (Oi Brasil Holdings Coöperatief UA and Portugal Telecom International Finance BV) were responsible for issuing approximately €5.8 billion (US$6.2 billion), representing most of the debtors’ outstanding bond debt.110 The Dutch case caused a split among the company’s bondholders. While one group of investors formed the ‘International Bondholder Committee’ to press their case in the Netherlands, another group advised by Moelis & Co focused exclusively on the Brazilian case.111

In May 2017, certain of Oi’s creditors filed a motion in the US Bankruptcy Court for the Southern District of New York pressuring the debtors to consider an alternative proposal to their current restructuring plan. Oi’s plan proposed giving financial creditors 25 per cent of its equity or convertible bonds callable in three years. By contrast, the competing plan put forth by the creditor group proposed a debt-for-equity swap that would give them a 95 per cent stake in the reorganised Company.112

Efforts to restructure Oi’s debt obligations have slowed amidst political turmoil that has limited Oi’s ability to negotiate with one of its largest creditors – its telecom regulator, Anatel. Although Oi could owe Anatel up to 20 billion reais (US$6.1 billion), current law forbids the agency from accepting any sort of haircut or extending the payment schedule on such indebtedness. Two pieces of legislation that would otherwise permit Anatel greater flexibility to negotiate have stalled as Brazilian political leaders scramble to address recent grafting allegations against President Michel Temer.113

ii Ocean Rig

The Ocean Rig Group operates as an international offshore oil drilling contractor, owner and operator of drilling rigs. It provides drilling services for offshore oil and gas exploration, development and production, and specialised in the ultra-deepwater and harsh-environment segments of the offshore drilling industry.114

On 24 March 2017, Ocean Rig UDW Inc, the holding company of the Ocean Rig Group, and three of its subsidiaries (together, the Ocean Rig Debtors) filed winding-up petitions with the Grand Court of the Cayman Islands to commence provisional liquidation proceedings under Part V of the Cayman Islands Companies Law (2016 Revision) (the Cayman Proceedings) and issued summonses for the appointment of joint provisional liquidators (JPLs).115 On 27 March 2017, the Cayman Proceedings were commenced and the JPLs appointed, and the JPLs commenced cases (the Chapter 15 Cases) under Chapter 15 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of New York (the Chapter 15 Court).

On 24 August 2017, the Chapter 15 Court granted recognition of the Cayman Proceedings as foreign main proceedings.116 The Chapter 15 Court’s opinion is the latest in a body of case law analysing whether and in what circumstances a debtor may shift or migrate its centre of main interest (COMI) to a jurisdiction where an effective plenary proceeding can be commenced prior to initiating proceedings in such jurisdiction.

Until sometime in 2016, each of the Ocean Rig Debtors had its COMI in the Republic of the Marshall Islands.117 In April 2016, Ocean Rig UDW, Inc registered as an exempted company limited by shares under Section 202 of the Cayman Companies Law, and thereafter the Ocean Rig Debtors took various additional steps to shift their COMI to the Cayman Islands.118 The Ocean Rig Debtors took these actions because defaults were anticipated under the Ocean Rig Debtors’ debt documents, and, while the Republic of the Marshall Islands does not have a statute or any procedures that would permit a company to restructure, the Cayman Islands does.119 In other words, the Ocean Rig Debtors engaged in a form of forum shopping in order to locate themselves in a jurisdiction that would not compel them to liquidate.

The Chapter 15 Court first found, consistent with other recent decisions, that a court must determine a debtor’s COMI as of the date of the filing of the Chapter 15 petition, without regard to the debtor’s historic operational activity.120 Despite the fact that the Ocean Rig Debtors remained registered as non-resident corporations in the Republic of the Marshall Islands, the Chapter 15 Court concluded that the debtors’ efforts to migrate COMI, which were extensive, did indeed achieve their intended purpose.121 The Chapter 15 Court then concluded that the Ocean Rig Debtors had not manipulated their COMI in bad faith, because the shift from the Republic to Marshall Islands to the Cayman Islands ‘was done for legitimate reasons, motivated by the intent to maximize value for their creditors and preserve their assets’.122

V TRENDS AND OTHER RECENT DEVELOPMENTS

Bankruptcy filings in the United States have increased over the past year, halting a decline since their 2009–2010 peak during the global financial crisis.123 Companies had been buoyed by access to cheap capital because of historically low interest rates, providing relief for companies with highly leveraged balance sheets that likely would have struggled to meet their debt obligations had interests rates begun to rise.124 However, despite the persisting low-interest rate environment, adverse market forces in a number of industries have led to a wave of bankruptcy filings.

The sections below highlight recent trends in the energy and retail sectors and also offer some detail on recent decisions and other developments that may be relevant in US bankruptcy practice in the coming years.

i Industry downturns
Energy industry downturn

The energy industry has experienced a number of bankruptcies over the past few years despite the general availability of cheap credit, and this trend is unlikely to abate in the near future. In particular, the coal industry is likely to continue to be hit hard by the prevalence of cheaper and cleaner sources of energy, such as natural gas, increasingly stringent regulation and large unfunded pension and retirement liabilities. According to the Institute for Energy Economics and Financial Analysis, the combined market capitalisation of major publicly traded US coal companies fell by over 90 per cent between April 2011 and March 2016, plummeting US$62.5 billion to US$4.59 billion.125

Although 2017 has also been a challenging year for the oil and gas industry, the pace of bankruptcies seems to have slowed somewhat as many companies have cycled through Chapter 11 and higher commodity prices provide some relief. The story is different for service companies, however, which have not seen much of a decrease in bankruptcy rates. Unlike E&P companies, service companies have filed at a relatively steady rate during the last two years, with no single month markedly worse than others.126

Despite the continued challenges facing the industry, there is growing optimism that the oil and gas industry is inching closer to a rebound. One of the most formidable obstacles in the way of an industry recovery is the low price of oil, with crude prices around US$48 a barrel. To drill profitably at this rate, oil producers must cut costs. But realising these cost savings could prove challenging, as service companies must raise prices to support taking rigs and hydraulic fracturing equipment out of storage and hiring capable professionals to operate them, driving up the break-even oil price for operators.127 The price of oil, therefore, will continue to play a determinative role in whether the growing optimism yields material improvement, or if the next year brings more of the same for the beleaguered industry.

Retail industry downturn

Changing dynamics in the retail industry have created myriad operational challenges, forcing once successful retailers to file for bankruptcy protection. These market forces include consumer shift from traditional brick-and-mortar stores to online shopping sites such as Amazon, a highly competitive market, and a still tepid economy, which has impaired the earning power of middle class Americans. These dynamics have left retailers with insufficient revenue to cover high fixed costs such as leases for their stores.128

In March of 2016, Sports Authority sought Chapter 11 protection, ushering in a wave of retail bankruptcies. In April 2016, Vestis Retail Group, which manages Eastern Mountain Sports, Bob’s stores, and Sports Chalet, also filed for protection under Chapter 11. Aeropostale, an apparel company, filed the following month.129

Despite earlier optimism that the challenges facing retail might subside in 2017,130 the industry-wide downturn has only taken a turn for the worse during the first half of the year. More than 300 retailers filed for bankruptcy protection in the first half of 2017, up 31 per cent from the same time last year. It is also estimated that more than 5,300 store closing announcements have been issued to 20 June 2017, compared to 2,056 in 2016, 5,077 in 2015 and 6,163 in 2008, at the height of the recession. These developments have led some commentators to dub 2017 the year of the ‘retail apocalypse’. Although most of the retail filings this year have been for small companies, a number of well known brands have also sought bankruptcy protection, including Gymboree, rue21, and Payless Shoes.

Retailers that have so far avoided bankruptcy have not been immune to the market forces ravaging the industry and have been trimming operations accordingly. Underscoring the pressure on brick-and-mortar operations, JCPenney, Staples, Abercombie & Fitch, and Toys ‘R’ Us, among others, have closed several hundred stores in the past few years.131 In September 2017, Toys ‘R’ Us tapped advisers Kirkland & Ellis and Lazard Ltd to assist in a potential restructuring and/or refinancing of its significant debt load.132

ii Gifting

A recent trend in bankruptcy settlements over the last several years has been the increasing use of ‘gifting’, a consensual arrangement in which a senior creditor class gives a junior class or equity some of its share of recoveries otherwise due to it under a plan of reorganisation. The rationale underlying this practice, at first glance, seems benign, as sophisticated parties with bargaining power seemingly may opt to transfer their rights to junior parties in exchange for a more swift resolution to the bankruptcy proceedings. However, this analysis becomes more complicated when an intermediate creditor is involved and the priority regime outlined in Section 507 of the Bankruptcy Code is considered. Under Section 507, there is a hierarchy in resolving the claims of various creditors against the assets of the debtor. Viewed in this light, the intermediate creditor can object that junior creditors are receiving distributions before senior claims are paid in full, in violation of the absolute priority rule.

In 2011, the second circuit handed down a decision in In re DBSD North America, which limited the ability of senior creditors to gift their share of a distribution to more junior creditors. In DBSD, the court considered whether senior creditors’ decision to gift some of its cash distribution to equity holders, bypassing junior creditors with claims of higher priority relative to the equity holders, ran afoul of the absolute priority rule.133 The court invalidated the plan, holding that the senior creditors had no right to gift estate property in contravention of the statutorily contemplated hierarchy. The decision left unresolved the propriety of a senior creditor bypassing an intermediate creditor in gifting non-estate property to a junior creditor. In a decision that limited the scope of the DBSD holding, the third circuit held that the holding was limited to gifting estate property. Senior creditors, however, remained free to gift non-estate property.134

An arrangement known as a ‘structured dismissal’ has become an increasingly popular technique for parties seeking to implement a gifting arrangement without running afoul of the absolute priority rule. A structured dismissal is a dismissal of a Chapter 11 case combined with additional provisions in the dismissal order, which often include mutual releases, procedures for claims reconciliation, ‘gifting’ of funds to junior creditors and retention of jurisdiction by the bankruptcy court. Structured dismissals are often employed in situations where the debtors have insufficient unencumbered assets to finance a confirmable Chapter 11 plan (e.g., after a sale of all or substantially all of such debtors’ assets pursuant to Section 363 of the Bankruptcy Code). The Supreme Court’s decision in Czyzewski v. Jevic Holding Corp135 has recently made clear, however, that priority deviations implemented through non-consensual structured dismissals are not permitted.

iii Covenants/DIP loans

Many large corporate bankruptcies involve the debtor securing post-petition debtor-in-possession financing (a DIP loan). The DIP loan provides the debtor with the cash necessary to continue its operations throughout the bankruptcy and to cover the costs of the bankruptcy. The lender extending a DIP loan to the debtor, often a pre-petition creditor of the debtor interested in protecting its pre-petition position, will place covenants in the DIP loan, setting milestones that the debtor must meet under the terms of the loan. Such milestones can include, among others, deadlines to file disclosure statement and solicit votes on a plan of reorganisation and deadlines to obtain critical relief (e.g., the filing of a motion under Section 1113 of the Bankruptcy Code seeking to modify collective bargaining agreements, deadlines to file sale procedures and sale motions, if applicable, and deadlines to obtain confirmation of a plan).

There is an inherent tension in the restrictiveness of these milestones, which can be constraining and onerous for a debtor and the need for financing. On the one hand, debtors need DIP financing, and lenders need assurances as inducement to make these loans to a bankrupt company. On the other hand, strict covenants can tie the hands of debtors and add additional complexity and expense if other creditors contest the plan supported by the DIP lenders.

The recent trends in the industry has been towards more DIP lenders insisting on more restrictive milestones in DIP covenants. However, striking the right balance on the restrictiveness of milestones in DIP loans is still an open question. For instance, in response to the trend towards more restrictive covenants, the ABI Commission to Study the Reform of Chapter 11 has recommended adding to the bankruptcy code that no milestones can require actions within 60 days of the petition date. It will be interesting to see if that proposal or others gain traction and where the market settles on this issue.

1 Donald S Bernstein and Timothy Graulich are partners and Christopher S Robertson is an associate at Davis Polk & Wardwell LLP.

2 US Constitution, Article I, § 8.

3 11 U.S.C. §§ 101–1532 (2012).

4 Pub. L. No. 95-598 (1978).

5 Pub. L. No. 109-8 (2005).

6 As discussed in Section V, there is a proposal currently under consideration in Congress to add a new chapter or subchapter to the Bankruptcy Code tailored to resolving systemically important financial institutions.

7 Individuals can also seek relief under Chapters 7 and 11 of the Bankruptcy Code.

8 A trustee can be appointed in Chapter 11 for cause. 11 U.S.C. § 1104(a)(1).

9 11 U.S.C. § 555.

10 11 U.S.C. § 556.

11 Id.

12 11 U.S.C. § 559.

13 11 U.S.C. § 560.

14 11 U.S.C. § 561.

15 See In re Lehman Brothers Holdings Inc, Case No. 08-13555 (JMP) (Bankr. S.D.N.Y. 15 September 2009).

16 A plan of reorganisation is approved by a class when a majority in number of the class members vote in favour of it and the class members who voted in favour hold at least two thirds of the total value of the claims in that class. 11 U.S.C. § 1126.

17 11 U.S.C. § 547.

18 11 U.S.C. §§ 544(b), 548. Under Section 548, the trustee can avoid a fraudulent transfer of an interest of the debtor in property that took place within two years before the date of the filing of the petition. Under Section 544(b), a trustee can avoid a transfer of an interest of the debtor in property under applicable state law, which can extend the look-back period beyond two years. However, a debtor might not be able to avoid and recover subsequent transfers of property received abroad by a foreign transferee from a foreign transferor. See Securities Investor Protection Corp v. Bernard L Madoff Inv Sec LLC, Case No. 12-00115 (S.D.N.Y. 7 July 2014).

19 11 U.S.C. § 552(a).

20 The United States Trustee Program is a component of the Department of Justice that seeks to promote the efficiency and protect the integrity of the federal bankruptcy system. The Program monitors the conduct of parties in interest in bankruptcy cases, oversees related administrative functions and acts to ensure compliance with applicable laws and procedures. It also identifies and helps investigate bankruptcy fraud and abuse in coordination with various law enforcement agencies. The United States trustee is distinct from the trustee appointed to administer Chapter 7 and certain Chapter 11 cases.

21 11 U.S.C. §§ 1121(b), (d)(2)(A).

22 Only a single holder is necessary to commence an involuntary case if there are fewer than 12 overall holders of claims against the debtor.

23 11 U.S.C. §§ 303(b)(1), (2).

24 11 U.S.C. § 303(h)(1).

25 11 U.S.C. §§ 1504, 1515.

26 11 U.S.C. §704(a)(1).

27 The Supreme Court has observed that ‘the willingness of courts to leave debtors in possession “is premised upon an assurance that the officers and managing employees can be depended upon to carry out the fiduciary responsibilities of a trustee” ’. Commodity Futures Trading Comm’n v. Weintraub, 471 US 343, 355 (1985), citing Wolf v. Weinstein, 372 US 633, 651 (1963). Officers and directors may therefore owe fiduciary duties to the estate even if their fiduciary duties to the company were limited under state law prior to the bankruptcy. In re Houston Regional Sports Network, LP, Case No. 13-35998 (Bankr. S.D. Tex. 12 February 2014).

28 ‘Even when [a] company is insolvent the board may pursue, in good faith, strategies to maximise the value of the firm.’ Trenwick America Litig Trust v. Ernst & Young, 906 A.2d 168, 175 (Del. Ch. 2006), aff’d, 931 A.2d 438 (Del. 2007).

29 Marshall S Huebner and Darren S Klein, ‘The Fiduciary Duties of Directors of Troubled Companies’, American Bankruptcy Institute Journal, Vol. XXXIV, No. 2 (February 2015).

30 11 U.S.C. § 1104.

31 The 1st, 6th, 8th, 9th, and 10th Circuits have established Bankruptcy Appellate Panels (BAPs), which are panels composed of three bankruptcy judges that are authorised to hear appeals of bankruptcy court decisions. These panels are units of the federal courts of appeals. BAP judges continue to serve as active bankruptcy judges in addition to fulfilling their BAP duties. If a BAP has been established in a given circuit, the BAP will hear an appeal of a bankruptcy court decision unless a party to the appeal elects to have it heard by the district court. Decisions of the BAP may be appealed to the appropriate circuit court of appeals. United States Courts, Bankruptcy Appellate Panels, available at www.uscourts.gov/FederalCourts/UnderstandingtheFederalCourts/CourtofAppeals/BankruptcyAppellatePanels.aspx.

32 See Stern v. Marshall, 546 U.S. 462 (2011) (holding that the bankruptcy court lacked constitutional authority to enter a final judgment on a debtor’s tortious interference counterclaim even though the counterclaim was a ‘core proceeding’ under 28 U.S.C. § 157(b)(2)), Exec. Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165 (2014) (providing that, when a ‘Stern claim’ is encountered, the bankruptcy court may issue proposed findings of facts and conclusions of law to be reviewed de novo by the district court), Wellness Int’l Network, Ltd v. Sharif, 135 S. Ct. 1932 (2015) (holding that bankruptcy judges may enter final judgment on claims that seek only to add to the bankruptcy estate and would exist outside of bankruptcy proceedings if the parties knowingly and voluntarily consent).

33 Fed. R. Bankr. P. 9019.

34 11 U.S.C. §§ 741–753.

35 Pub. L. No. 91-598 (1970), codified at 15 U.S.C. §§ 78aaa et seq.

36 Pub. L. No. 74-675 (1936), codified at 7 U.S.C § 1 et seq.

37 17 C.F.R. Part 190.

38 Pub. L. No. 81-797 (1950).

39 Federal Deposit Insurance Company, ‘Overview: The Resolution Handbook at a Glance’, available at www.fdic.gov/about/Freedom/drr_handbook.pdf#page=10.

40 Pub. L. 111-203 (2010).

41 11 U.S.C. § 1011.

42 ‘United Nations Commission on International Trade Law (UNCITRAL): UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment’, 30 May 1997, available at www.uncitral.org/pdf/english/texts/insolven/insolvency-e.pdf.

43 11 U.S.C. § 1520.

44 In re TMT Procurement Corp., No. 13-33763 (MI) (Bankr. S.D. Tex. 20 June 2013). There are limits to a foreign-based company’s ability to seek Chapter 11 protection. See In re Yukos Oil Co, 321 B.R. 396,410-411 (Bankr. S.D. Tex. 2005) (bankruptcy court declines to exercise jurisdiction over Chapter 11 case of a Russian oil company seeking to use the automatic stay to prevent a foreclosure sale by the Russian government).

45 http://bea.gov/newsreleases/national/gdp/2017/pdf/gdp1q17_3rd.pdf.

46 United States Department of Labor, Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, available at http://data.bls.gov/timeseries/LNS14000000.

47 Federal Reserve Board, New Securities Issues, US Corporations, available at www.federalreserve.gov/econresdata/releases/corpsecure/current.htm.

48 Id.

49 United States Department of Treasury, Daily Yield Curve Rates, available at
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2017.

50 United States Department of Treasury, Daily Yield Curve Rates, available at https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2016.

51 David Harrison, ‘Fed’s Janet Yellen Era of Stimulative Monetary Policy is Ending’, The Wall Street Journal (11 April 2017), available at https://www.wsj.com/articles/federal-reserve-chairwoman-janet-yellen-sees-monetary-policy-shifting-1491865770.

52 Corrie Driebusch, ‘IPO Market Comes to a Standstill’, The Wall Street Journal (30 January, 2016) available at https://www.wsj.com/articles/ipo-market-comes-to-a-standstill-1454178166.

53 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2016 (last accessed 18 July 2017), available at http://share.thomsonreuters.com/general/PR/ECM_4Q_2016_E.pdf.

54 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2015 (last accessed 18 July 2017), available at http://dmi.thomsonreuters.com/Content/Files/4Q2015_Global_Equity_Capital_Markets_Review.pdf.

55 Id.

56 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2014 (last accessed 18 July 2017), available at http://dmi.thomsonreuters.com/Content/Files/4Q2014_Global_Equity_Capital_Markets_Review.pdf.

57 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2013 (last accessed 18 July 2017), available at http://dmi.thomsonreuters.com/Content/Files/Q2013_Thomson_Reuters_Equity_Capital_Markets_Review.pdf.

58 Id.

59 Moody’s Investor Services Announcement: Global speculative-grade default rate down again in Q2 2017 (13 July 2017), available at https://www.moodys.com/research/Moodys-Global-speculative-grade-
default-rate-down-again-in-Q2--PR_369664.

60 Id.

61 Moody’s Investor Services Announcement: Global speculative-grade default rate continues to rise (8 March 2016), available at https://www.moodys.com/research/Moodys-Global-speculative-grade-default-rate-continues-to-rise--PR_345304.

62 Moody’s Investor Services Announcement: Global speculative-grade default rate continues to rise (9 June 2017), available at https://www.moodys.com/research/Moodys-Global-speculative-grade-default-
rate-continues-downward-trend-in--PR_368021.

63 Moody’s Investor Services Announcement: Global speculative-grade default rate to surpass historic average in second quarter (April 11, 2016), available at https://www.moodys.com/research/Moodys-Global-
speculative-grade-default-rate-to-surpass-historical-average--PR_347054.

64 United States Courts, US Bankruptcy Courts – Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12-Month Period Ending 30 June 2010, available at www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2010/0610_f2.pdf.

65 PRWeb, Bankruptcy Data Releases its Q4 2016 Report of Business Bankruptcy Filings (23 January 2017), available at www.prweb.com/releases/2017/01/prweb14001978.htm.

66 New Generation Research, Inc., 2016 Corporate Bankruptcy Recap at 5, available at http://bankruptcydata.com/public/assets/uploads/pdf/PR_011217.pdf.

67 The Turnaround Letter, Largest Bankruptcies of 2016, available at www.turnaroundletter.com/largest-bankruptcies-this-year.

68 Kim Bhasin, ‘Retailers are Going Bankrupt at a Record Pace,’ Bloomberg (24 April 2017, 12:00 pm), available at https://www.bloomberg.com/news/articles/2017-04-24/retailers-are-going-bankrupt-at-
a-record-pace.

69 The Turnaround Letter, Largest Bankruptcies of 2017, available at www.turnaroundletter.com/largest-bankruptcies-this-year.

70 United States Courts, US Bankruptcy Courts – Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12-Month Period Ending 31 March 2017.

71 United States Courts, US Bankruptcy Courts – Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12-Month Period Ending 30 June 2016.

72 First Day Declaration of Eric Koza, Case No. 17-10089 at 2, ECF No. 22 (Bankr. S.D.N.Y 19 January 2017).

73 The pre-petition cash flow credit facility also provides for a revolving line of credit; as of the petition date, no revolving borrowings were outstanding thereunder.

74 First Day Declaration of Eric Koza, Case No. 17-10089 at 18, ECF No. 22 (Bankr. S.D.N.Y 19 January 2017).

75 ‘Avaya 1st Lien Group Blasts Debtors’ “Catering” to PBGC, Equity Sponsors; Presses for 30-Day Exclusivity Extension for Company to Become “Honest Broker”’, Reorg Research (16 May, 2017), available at https://platform.reorg-research.com/app#company/2364/intel/view/35433.

76 ‘Avaya PSA Executed by More Than Two-Thirds of 1L Debt’, Reorg Research (12 September, 2017), available at https://platform.reorg-research.com/app#company/2364/intel/view/41728.

77 Declaration of Scott Fenoglio, Senior Vice President and Finance and Planning and Principal Financial Officer of Bonanza Creek Energy, Inc, in support of First Day Pleadings, Case No. 17-10015 (KJC), ECF No. 16 at 5-8 (Bankr. D. Del January 2017).

78 Id. at 9–11.

79 Id. at 11–17.

80 ‘Bonanza Creek Achieves Plan Confirmation, Approval of Procedures for $200M Rights Offering; Debtors “Hope” to Launch Rights Offering “as Early as This Afternoon” ’, Reorg Research (7 April, 2017), available at https://platform.reorg-research.com/app#company/4126/intel/view/33349.

81 Declaration of Robert L Stillwell, vice president and chief financial officer of Memorial Production Partners GP LLC, in support of First Day Pleadings, Case No. 17-30262, ECF No. 17 at 4-13 (Bankr. S.D. Tex. 2017).

82 Id. at 13–19.

83 ‘Judge Isgur Confirms Memorial Production Amended Plan Featuring Increased Equityholder Recoveries’, Reorg Research (14 April, 2017), available at https://platform.reorg-research.com/app#company/4432/intel/view/33641.

84 ‘Memorial Production Partners Emerges from Chapter 11’, Reorg Research (4 May 2017), available at https://platform.reorg-research.com/app#company/4432/intel/view/34814.

85 Subsequently reduced to approximately 970 following the closing of 350 stores in July 2017.

86 Declaration of James A. Mesterharm, Chief Restructuring Officer of The Gymboree Corporation in support of First Day Motion, Case No. 17-32986 at 1–7, 15 ECF No. 30 (Bankr. E.D. Va. 12 June 2017).

87 Id. at 2–3.

88 Voluntary petition, The Gymboree Corporation, Case No. 17-32986 at 6, ECF No. 1 (Bankr. E.D. Va. 11 June 2017)

89 Declaration of James A. Mesterharm, Chief Restructuring Officer of The Gymboree Corporation in support of First Day Motion, Case No. 17-32986 at 19, ECF No. 30 (Bankr. E.D. Va. 12 June 2017).

90 Id. at 4.

91 Id.

92 Declaration of Michael Schwindle, Chief Financial Officer of Payless ShoeSource Inc. in support of First Day Pleadings, Case No. 17-42267 (659) at 4-11, ECF No. 34 (Bankr. E.D. Mo. 5 April 2017).

93 Voluntary petition, Payless ShoeSource Inc, Case No. 17-42267 (659) at 4, ECF No. 1 (Bankr. E.D. Mo. 4 April 2017)

94 Declaration of Michael Schwindle, Chief Financial Officer of Payless ShoeSource Inc in support of First Day Pleadings, Case No. 17-42267 (659) at 13-14, ECF No. 34 (Bankr. E.D. Mo. 5 April 2017).

95 Id. at 3, 18.

96 Id. at 1.

97 Fifth Amended Joint Plan of Reorganization, Payless ShoeSource Inc, Case No. 17-42267 (659) at 25, ECF No. 1507 (Bankr. E.D. Mo. 21 July 2017).

98 Debtor’s Brief in Support of Fifth Amended Joint Plan of Reorganization, Payless ShoeSource Inc., Case No. 17-42267 (659) at 3, ECF No. 1548 (Bankr. E.D. Mo. 21 July 2017).

99 Declaration of Todd M. Lenhart, Acting Chief Financial Officer of rue21, Inc. in support of First Day Motion, Case 17-22045 (GLT) at 3-5, ECF No. 8 (Bankr. W.D. Pa. 16 May 2017).

100 Voluntary petition, rue21, Inc., Case No. 17-22045 (GLT) at 4, ECF No. 1 (Bankr. W.D. Pa. 15 May 2017).

101 Declaration of Todd M. Lenhart, Acting Chief Financial Officer of rue21, Inc. in support of First Day Motion, Case 17-22045 (GLT) at 13-14, ECF No. 8 (Bankr. W.D. Pa. 16 May 2017).

102 Id. at 7.

103 Bankruptcy: Rue21 Files Reorg Plan; Disclosure Statement Hearing Set for July 10, LeveragedLoan (5 June 2017), available at www.leveragedloan.com/bankruptcy-rue21-files-reorg-plan-disclosure-statement-hearing-set-july-10/.

104 Id.

105 Toys ‘R’ Us ‘About Us’ (2017), available at https://m.toysrus.com/skava/static/customerservices.html?serviceType=aboutus.

106 Voluntary petition, Toys ‘R’ Us, Inc, Case No. 17-34666 (KLP), ECF No. 1 (Bankr. E.D. Va. 18 September 2017).

107 Rogerio Jelmayer and Luciana Magalhaes, ‘Telecom Oi Files Largest Bankruptcy Request in Brazil’s History’, The Wall Street Journal (20 June, 2016) available at https://www.wsj.com/articles/telecom-oi-
files-largest-bankruptcy-request-in-brazils-history-1466463734.

108 Ana Mano and Alberto Alerigi, ‘Brazil Oi creditors file U.S. motion as bankruptcy negotiations continue’, Thomson Reuters (23 May 2017) available at www.reuters.com/article/us-oi-restructuring/brazil-oi-
creditors-file-u-s-motion-as-bankruptcy-negotiations-continue-idUSKBN18J35D.

109 ‘Dutch court puts two units of Brazil’s Oi into bankruptcy proceedings’, Thomson Reuters (19 April 2017), available at www.reuters.com/article/us-oi-sa-restructuring/dutch-court-puts-two-units-of-brazils-oi-into-
bankruptcy-proceedings-idUSKBN17M0BF.

110 Id.

111 Id.

112 Ana Mano and Alberto Alerigi, ‘Brazil Oi creditors file U.S. motion as bankruptcy negotiations continue’, Thomson Reuters (23 May 2017) available at www.reuters.com/article/us-oi-restructuring/brazil-oi-
creditors-file-u-s-motion-as-bankruptcy-negotiations-continue-idUSKBN18J35D.

113 Fabiola Moura, ‘Political Meltdown Foils Oi Exit from $19 Billion Bankruptcy’, Bloomberg (10 July 2017), available at https://www.bloomberg.com/news/articles/2017-07-10/political-meltdown-
foils-oi-s-exit-from-19-billion-bankruptcy.

114 Declaration of Antonios Kandylidis Pursuant to 28 U.S.C. § 1746, Case No. 17-10736, ECF No. 5 at 5 (Bankr. S.D.N.Y. 27 March 2017).

115 See Verified Petition of Ocean Rig UDW Inc., et al. (In Provisional Liquidations) and Motion of the Joint Provisional Liquidators for (a) Recognition of the Cayman Proceedings as Foreign Main Proceedings or, in the Alternative, As Foreign Nonmain Proceedings and (b) Certain Related Relief, Case No. 17-10736, ECF No. 2 at 3 (Bankr. S.D.N.Y. 27 March 2017).

116 Memorandum Opinion Granting Recognition of Foreign Debtors’ Cayman Islands Proceedings as Foreign Main Proceedings, Case No. 17-10736 (Bankr. S.D.N.Y. 24 August 2017).

117 Id. at 3.

118 Id. at 6, 13–18.

119 Id. at 11.

120 Id. at 28.

121 Id. at 32.

122 Id. at 33.

123 The 2014 Bankruptcy Yearbook and Almanac (see footnote 57), at 16.

124 See Jon Hilsenrath, ‘Fed Keeps Rates Unchanged, Sees Eventual Rise in 2015, 2016’; see footnote 47.

125 ‘Market Cap of U.S. Coal Companies Continues to Fall’ (23 march 2016), available at http://ieefa.org/market-cap-u-s-coal-companies-continues-fall.

126 ‘E&P Bankruptcies Tapering Off in 2017’, Oil & Gas 360 (24 March 2017), available at https://www.oilandgas360.com/ep-bankruptcies-tapering-off-2017/.

127 Lynn Cook, ‘Despite Optimism, Oil Firms Keep Cutting Jobs,’ (22 July 2016), available at www.wsj.com/articles/despite-optimism-oil-firms-keep-cutting-jobs-1469209897.

128 At least one commentator has suggested that, in addition to the market forces driving the downturn, the mandatory 210 day limit on the time by which a debtor must assume or reject a commercial real estate lease under section 365(d)(4) of the Bankruptcy Code leaves retailer debtors with insufficient time to negotiate with their landlords and properly emerge from Chapter 11 as a standalone entity. See Lawrence C. Gottlieb, ‘The Disappearance of Retail Reorganizations Under the Amended Section 365(d)(4)’ available at http://business-finance-restructuring.weil.com/wp-content/uploads/2013/06/Gottlieb-Paper.pdf.

129 ‘So far, 2016 is a boom year for retail bankruptcies,’ PYMNTS (5 May 2016), available at www.pymnts.com/news/risk-management/2016/chapter-11-retail-bankruptcy-debt-restructuring/.

130 Treacy Reynolds, ‘National Retail Federation Upgrades 2016 Economic Forecast,’ National Retail Federation (26 July 2016), available at https://nrf.com/media/press-releases/national-retail-federation-
upgrades-2016-economic-forecast.

131 J D Heyes, ‘Retail Tsunami of bankruptcies and closings now sweeping America,’ Natural News (24 April 2014), available at www.naturalnews.com/044840_retail_tsunami_bankruptcies_store_closings.html.

132 Jodi Xu Klein, ‘Toys ‘R’ Us Enlists Advisers to Help Restructure Debt’, Bloomberg Markets (6 September 2017), available at https://www.bloomberg.com/news/articles/2017-09-06/toys-r-us-is-said-
to-enlist-advisers-to-help-restructure-debt.

133 In re DBSD North America, Inc, 634 F.3d 79 (2d Cir. 2011).

134 In re ICL Holding Company, Inc, No. 14-2709 (3d Cir. 2015).

135 137 S. Ct. 973, 986 (2017).