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:
- trustee-administered liquidation (Chapter 7);
- municipality bankruptcy (Chapter 9);
- debtor-in-possession (DIP) managed reorganisation or liquidation (Chapter 11);
- family farmer and fisherman bankruptcies (Chapter 12);
- individual bankruptcies (Chapter 13);7 and
- 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 chapter 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.
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
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:
- 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
- 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
- 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
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 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 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 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 first quarter of 2018 at an average annual rate of 2.2 per cent and is estimated to have increased at an average annual rate of 4.1 per cent in the second quarter of 2018.45 Furthermore, reported unemployment continues to abate: the unemployment rate for July 2018 was 3.9 per cent, down from 4.3 per cent in July 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 2017, US corporations issued almost US$1.81 trillion in bonds, exceeding the US$1.49 trillion issued in 2016 and the US$1.61 trillion issued in 2015.47 Through the first five months of 2018, over US$700 billion worth of bonds had been issued.48 Average interest rates have risen slightly from their historic lows; the 10-year Treasury rate is currently around 2.98 per cent49 and has ranged between 2.44 per cent and 3.11 per cent in the current calendar year,50 while in 2017, the rate ranged between 2.05 per cent and 2.62 per cent.51
US equity markets also experienced an uptick in 2016 and 2017. Specifically, US equity and equity-related proceeds totalled US$204.3 billion on 905 deals in 2017,52 which represents a 13 per cent increase in proceeds compared to the US$180.8 billion raised in 201653 and approximately 25.9 per cent more deals than the 719 in 2016.54 US equity and equity-related proceeds in 2016 were approximately 21.5 per cent less than the US$229.5 billion raised in 201555 and 30.2 per cent less than the US$258.1 billion raised in 2014.56 Similarly, the number of deals in 2017 was 6.2 per cent greater than the 852 in 201557 and 10.4 per cent less than the 10.10 in 2014.58
US corporate default rates have fluctuated since 2017. Moody's measured the US speculative-grade default rate in May 2018 at 3.7 per cent,59 compared to default rates of 3.9 per cent60 in the first quarter and 3.4 per cent in the end of 2017.61 Moody's indicated that the leveraged loan default rate has been rising; the rate for the first quarter of 2018 was 2.6 per cent, compared with the 2017 fourth quarter rate of 2.4 per cent and 2017 first quarter rate of 2.2 per cent.62
The frequency of business filings remains well below its peak in 2010,63 and although many businesses continue to seek bankruptcy relief due to significant challenges in sectors of the US economy, 2017 marked a significant decrease in filings as compared to recent years. In 2017, a total of 71 public companies filed Chapter 7 or Chapter 11 bankruptcy proceedings, representing a 28 per cent decrease from 99 public companies in 2016.64 Aggregate prepetition assets totalled approximately US$107 billion in 2017, up from 2016's aggregate prepetition assets of approximately US$105 billion; this increase was driven largely by two particularly large filings – Seadrill Limited (SDRL) (US$21.7 billion in assets) and Walter Investment Management Corp. (WAC) (US$16.8 billion in assets).65 The oil and gas/energy/mining sector was a key industry represented in public company bankruptcies in 2017 (30 per cent of filings).66 As discussed in greater detail below, the retail industry also suffered a significant downturn in 2017.67 The energy/oil and gas and retail industries have continued to produce many of the most significant bankruptcies in the early part of 2018, including FirstEnergy Solutions Corp. (US$5.5 billion in assets), Claire's Stores, Inc (US$2 billion in assets), EV Energy Partners, LP (US$1.6 billion in assets), and Bon-Ton Stores, Inc (US$1.5 billion in assets).68
Sixty-four companies commenced Chapter 15 proceedings in the 12 months ending on 30 June 2018,69 compared with the 138 Chapter 15 Cases that were initiated during the 12 months ending on 30 June 2017.70
III PLENARY INSOLVENCY PROCEEDINGS
i Toys 'R' Us, Inc
Toys 'R' Us, Inc was the leading chain of toy stores, with 1,600 stores throughout 49 states and 38 countries. It operated under numerous brand names, including Toys 'R' Us, Babies 'R' Us, Toys 'R' Us Outlet, and Toys 'R' Us Express, and it had an online presence for both its 'Toys' and 'Babies' brands. Toys 'R' Us claimed, perhaps accurately, to be one of the most recognisable brands in the world.71
Toys 'R' Us, Inc and affiliates filed for Chapter 11 in the Eastern District of Virginia on 18 September 2017. As of the petition date, the debtors had US$5.265 billion in funded debt, in part the result of a leveraged buyout in 2005. At a high level, the debtors' funded debt fell into three categories: (1) financing for the debtors' US operations, with sub-facilities for Canadian operations, (2) financing for the debtors' international operations and (3) financing for certain standalone US entities.72 These obligations included the following.
- A secured ABL credit facility with approximately US$1.305 billion in borrowings (including a US$280 million FILO tranche) and US$91 million of letters of credit outstanding as of the petition date; and
- approximately US$1.182 billion in various tranches of secured term loans.
- Various European and Japanese revolving and term loan facilities with approximately US$707 million of loans outstanding in the aggregate; and
- approximately US$583 million of Taj Senior Notes.
Standalone US entities
- Approximately US$22 million in unsecured notes co-issued by Toys 'R' Us, Inc and Toys 'R' Us-Delaware, Inc, not guaranteed by any other debtors;
- approximately US$208 million in unsecured notes issued by Toys 'R' Us, Inc, not guaranteed by any other debtors;
- approximately US$70 million in Giraffe Junior Holdings, LLC secured mezzanine loans; and
- approximately US$1.366 billion of borrowings by the debtors' two real estate holding companies.73
In connection with its restructuring efforts, Toys 'R' Us obtained approximately US$3.1 billion in DIP financing, the proceeds of which were to be used for, among other purposes, administering the Chapter 11 cases and paying vendors in the ordinary course.74 Pointing to 'well below worst case' holiday sales and the 'stark reality' that the company would run out of cash in the US by May 2018, Toys 'R' Us sought approval to liquidate all 735 of its US stores,75 which was granted by the Bankruptcy Court on 22 March 2018.76 On 17 July 2018, in connection with the wind-down process, Toys 'R' Us filed a motion to approve a comprehensive settlement agreement, providing for payment in full of Toys' ABL/FILO and Term DIP Facilities as well as recoveries for administrative claimants through an administrative claims distribution pool and the distribution of the remaining assets to primarily the prepetition secured lenders.77 On 7 August 2018, the comprehensive settlement agreement was approved by the court.78
Where possible, the Toys 'R' Us debtors are pursuing sale transactions for stand-alone business units as going concerns. For example, on 1 June 2018, Toys 'R' Us (Canada) Ltd and Babies 'R' Us (Canada) announced the closing of its previously announced sale to Fairfax Financial Holdings Limited.79
ii Claire's Stores, Inc
Claire's Stores, Inc is a leading speciality retailer, providing girls aged three to 35 with jewellery, accessories, and beauty products under two brand names, Claire's and Icing. It is also the world's leading ear piercer (boasting at the time of filing that it had pierced more than 100 million ears). With over 7,500 locations in 45 different countries, including company-owned stores, franchises and concessions, Claire's continued to emphasise the strength of its operations upon filing.80 Claire's and certain US affiliates voluntarily filed for Chapter 11 on 19 March 2018 in the United States Bankruptcy Court for the District of Delaware.81 As of the petition date, the debtors' funded debt obligations (not including approximately US$245 million in non-debtor obligations) included:
- a prepetition ABL credit facility with approximately US$71 million of borrowings and US$4 million of letters of credit outstanding as of the petition date;
- a prepetition LC facility of approximately US$1.3 million;
- a senior secured term loan of approximately US$32 million;
- approximately US$1.335 billion in first lien notes;
- approximately US$222 million in second lien notes; and
- approximately US$217 million in senior unsecured notes.82
The debtors' stated goal at the outset of the Chapter 11 cases was to effectuate a pre-negotiated balance sheet restructuring as contemplated under the restructuring support agreement entered into prepetition with an ad hoc group of first lien creditors and the company's equity sponsor, Apollo.83 The RSA parties agreed to provide or backstop up to US$575 million of new capital (up to US$250 million of convertible preferred equity, a US$250 million first lien term loan and a US$75 million asset-based lending facility) upon emergence.84 The debtors' proposed plan has been contested from the beginning by Oaktree Capital Management, which is the largest holder of second lien notes. Oaktree's 12 July 2018 objection to the debtors' disclosure statement (which was overruled on 20 July 2018)85 contains a preview of issues that it is likely to raise in connection with confirmation. For instance, Oaktree criticised the debtors' 'artificially depressed view of value' and accused the debtors of 'attempting to charge ahead on a blazingly quick timeline dictated by their insider RSA' with the intent to 'foreclose the recognition of hundreds of millions of dollars of existing estate value and upside'.86 Oaktree has stated that it has submitted a partially committed all-cash offer that would 'award  cash payments to each class of creditors in an amount that exceeds their recoveries under the RSA Plan' and that the proposal will be fully committed by 31 August.87 Oaktree is also seeking standing avoid certain transfers of Claire's intellectual property to non-debtor affiliates in connection with a 2016 refinancing transaction and related royalty payments and future payment obligations.88
iii GenOn Energy, Inc
GenOn Energy, Inc is one of the 10 largest wholesale power generation companies in the US, operating through a multitude of direct and indirect subsidiaries (61 of which are debtors in GenOn's Chapter 11 cases). Its revenue-generating activities include committing to making power production capacity available in the future, selling power that has been produced, and providing related services.89 GenOn in its current iteration is a result of two separate large-scale mergers – the 2010 merger between wholesale power generation companies RRI Energy, Inc and Mirant Corporation (resulting in RRI taking the name GenOn), and NRG Energy, Inc's US$5.989 billion acquisition of GenOn in 2012.90
GenOn filed for Chapter 11 on 14 June 2017 with the goals of delevering its balance sheet by over US$1 billion and transitioning into a standalone power generation company in order to thrive in the current market.91 At the time of filing, GenOn had about US$885 million in cash on hand and faced maturation of US$1.755 billion in unsecured notes over a four-year period.92 As of the petition date, the debtors' funded debt obligations included:
- an intercompany secured revolver with approximately US$125 million in cash borrowings and US$143 million of letters of credit outstanding as of the petition date;
- an aggregate amount of approximately US$1.830 billion of three series of unsecured notes issued by GenOn Energy, Inc; and
- an aggregate amount of approximately US$695 million of two series of senior unsecured notes in GenOn Americas Generation.93
The debtors were party to an RSA supported by the key equity holder, NRG Energy, Inc, and over 90 per cent of the debtor's funded debt. The RSA also provided that non-funded debt general unsecured creditors would be paid in full. Despite the apparent strength of this initial position, the Plan has required six amendments, notably regarding a proposed settlement with the owner-lessor counterparties to 11 near-identical sale-leaseback agreements with GenOn Mid-Atlantic LLC's (GenMA) regarding two power plants in Maryland. The owner-lessors asserted claims of as much as US$620 million against the Chapter 11 estate on the basis that GenOn and NRG had improperly siphoned cash out of GenMA that should have been used to maintain GenMA's financial health.94 A settlement was eventually reached following a bench ruling in a complicated claims estimation trial held in November, in which the bankruptcy court estimated the owner-lessor's claims at US$0 while also seeming to invite them to challenge the plan at confirmation.95 The plan was confirmed in December 2017, with the company expected to emerge from Chapter 11 in mid to late 2018.96 Most recently, the plan incorporated on 4 April 2018 a mediated settlement agreement designed to resolve the ongoing dispute by providing for the purchase or redemption of outstanding lessor notes from the GenMA owner lessors.97
iv First Energy Solutions Corp
FirstEnergy Solutions Corp (FES) is an Akron, Ohio-based subsidiary of parent public utility holding company FirstEnergy Corp. (FE Corp). FES, its subsidiaries, and FirstEnergy Nuclear Operating Company (the debtors in this case) own or operate multiple fossil and nuclear power generating facilities and provide supporting services for other facilities across Pennsylvania and Ohio.98
The debtors voluntarily filed for Chapter 11 with the US Bankruptcy Court in the Northern District of Ohio on 31 March 2018. FES cited significant debt obligations and lease payments, increased operational costs, reduced revenues resulting in part from a rapid expansion in natural gas supply and a resulting drop in energy prices, and obligations under certain long-term executory power purchase agreements as factors that contributed to the bankruptcy filing.99 As of the petition date, the debtors' funded debt obligations included the following.
- A secured revolving credit facility provided by FE Corp of approximately US$700 million;
- approximately US$695 million in unsecured notes; and
- a credit facility with Allegheny Energy Supply Company, LLC with approximately US$102 million of loans outstanding.
First Energy Generation, LLC (FG)
- Approximately US$328 million in secured fixed-rate pollution control revenue notes (PCNs);
- approximately US$677 million in unsecured PCNs; and
- approximately US$769 million outstanding on a sale-leaseback transaction related to a coal plant.
FirstEnergy Nuclear Generation, LLC (NG)
- Approximately US$285 million in secured PCNs;
- approximately US$842 million in unsecured PCNs; and
- approximately US$240,000 of outstanding debt on an aircraft leasing loan, owed by FE Aircraft Leasing Corp to FES.100
One notable legal dispute in the FES bankruptcy related to the treatment of nine Federal Energy Regulatory Commission (FERC)-regulated 'bundled' long-term power purchase agreements (PPAs). The day after the petition date, FES and FG commenced an adversary proceeding against FERC, seeking both a declaratory judgment that the bankruptcy court may permit the rejection of the PPAs, as well as related injunctive relief.101 Pursuant to the PPAs, FES purchased capacity, power, related services and renewable energy credits needed to meet various state regulatory requirements from various wind and solar generating facilities. The PPAs were negotiated between 2003 and 2011. Subsequently, many renewable energy credit requirements were relaxed, the supply of credits increased, and energy prices declined dramatically, which resulted in the PPAs being well above market. By the debtors' estimate, performing on the PPAs would cause the debtors to lose US$765 million over their respective remaining terms on an undiscounted basis, and more than US$475 million on a net present value basis.102
Whether the debtors may reject the FERC-regulated PPAs is a question of first impression in the Sixth Circuit. FERC has jurisdiction over the rates, terms and conditions for transmitting or selling wholesale electric energy. In the Calpine case,103 the Bankruptcy Court for the Southern District of New York held that a proposed rejection of a FERC-regulated contract for the sale of electric power, where the rationale for rejection was that the rate set by FERC was off market, would be tantamount to 'the unilateral termination of a regulatory obligation' and therefore constituted an unlawful collateral attack on the filed rate.104 FERC and several intervenors argued that the FES court should follow Calpine.
On 31 July 2018, the Bankruptcy Court ruled that FES may reject the PPAs (to the extent the debtors had not reached agreement with the counterparties) as a proper exercise of its business judgment.105 The objecting parties reserved their appellate rights with respect to FERC's jurisdiction over the debtors' request to reject these contracts.106
FES recently cleared a major hurdle on its path to confirmation. On 31 July 2018, the debtors announced that they had reached a definitive settlement that defines and quantifies all of non-debtor parent FE Corp's obligations with respect to FES and co-debtor FirstEnergy Nuclear Operating Company and that includes the FES unsecured creditors' committee. A settlement that FES reached with two other key creditor groups in April 2018 will be amended to incorporate this agreement in principle. The amended settlement remains subject to execution of definitive agreements, various board approvals, and the approval of the Bankruptcy Court.107
v iHeartMedia, Inc
iHeartMedia, Inc is a media, entertainment and data company largely known for its 849 radio stations but also engaged in numerous consumer-focused platforms, including social media, live concerts and events, and independent media representation, among others.108
iHeartMedia, Inc, along with 38 direct and indirect subsidiaries, filed for bankruptcy in the US Bankruptcy Court for the Southern District of Texas, Houston Division on 15 March 2018. The company had been acquired in a leveraged buyout in 2007 that contributed to the debtors' US$16 billion in funded debt, and both the 2008 financial crisis and industry-specific issues contributed to declining cash flows and limited growth. The restructuring was framed as a balance sheet reorganisation, designed to set up the business for long-term success.109 As of the petition date, iHeartMedia, Inc was the borrower/issuer of the following amounts:
- an ABL facility with approximately US$371 million of outstanding borrowings;
- a term loan facility with two tranches of loans in an aggregate amount of approximately US$6.3 billion;
- approximately US$6.752 billion in priority guarantee notes (PGNs);
- approximately US$2.235 billion in senior unsecured notes; and
- approximately US$532 million in three series of senior unsecured 'legacy' notes.110
Certain of iHeartMedia's subsidiaries guaranteed each of the obligations listed above except for the legacy notes, which were not guaranteed by any subsidiaries of iHeartMedia.
Although the debtors went into their first-day hearing with a restructuring support agreement in place with at least 67 per cent of the aggregate outstanding principal amount of term loan, PGN and junior debt claims, a group of approximately US$190 million of legacy noteholders opposed the agreement from the outset.111 These noteholders allege entitlement to liens on certain assets under 'equal and ratable' provisions in the legacy notes indentures.112 Shortly after the petition date, Wilmington Savings Fund Society (WSFS), as indenture trustee for the legacy notes, filed an adversary complaint against debtors alleging violations of the legacy notes indenture 'by not granting 'equal and ratable' mortgages'.113 This has yet to be fully adjudicated.114
Under the debtors' proposed plan, the iHeart business would be separated from the businesses of non-debtor subsidiary Clear Channel Outdoor Holdings, Inc, which is currently 89.5 per cent owned by the debtors (the other 10.5 per cent is publicly traded). iHeart would emerge substantially delevered, with US$5.75 billion of new debt, including new term loans, new secured notes and new unsecured notes, plus a new ABL facility.115
On 9 July, the official committee of unsecured creditors filed a motion to gain standing to prosecute at least 12 causes of action against debtors amounting to potentially 'billions of dollars' in avoidance claims against various term loans and priority guarantee notes.116 WSFS joined the UCC motion, given its 'unique role' as the largest unsecured creditor not party to the RSA.117 The parties have agreed to hold this motion in abeyance for the time being.118
vi Remington Outdoor Company, Inc
Remington Outdoor Company, Inc is one of the oldest and largest firearms, ammunition and related products manufacturers, serving commercial consumers, military and law enforcement worldwide. Remington points to its category-defining brands, a broad portfolio, diverse distribution channels, and customer-focused management, sales and marketing strategies in explaining its leading market positions in military and law enforcement sales.119
Debtors filed for Chapter 11 in the US Bankruptcy Court for the District of Delaware on 25 March 2018 as a result of a combination of overproduction and unexpected declines in sales, causing the company difficulty maintaining borrowing capacity. As of the petition date, the debtors' funded debt obligations included:
- an ABL facility with approximately US$114.5 million of borrowings as of the petition date;
- a term loan facility of approximately US$550.5 million;
- approximately US$226 million in outstanding third lien notes;
- approximately US$20 million in outstanding notes from an intercompany note purchase agreement between debtors FGI Opco and Remington Outdoor Company, Inc (ROC);
- a secured promissory note of approximately US$12.5 million; and
- approximately US$55 million in outstanding claims owed to vendors, suppliers and service providers.120
The debtors filed with a 'straddle' prepackaged plan of reorganisation and an RSA. Per the RSA, the ABL facility lenders had agreed to provide debtors with DIP financing of up to US$193 million to satisfy some of the ABL facility obligations. Debtor ROC and certain other lenders also agreed to provide DIP financing of up to US$145 million, which was approved by the bankruptcy court in April 2018.121 On 4 May 2018, Remington's plan of reorganisation was confirmed by the bankruptcy court and on 15 May 2018, Remington emerged from bankruptcy. On the effective date of the plan, the prepetition term loan lenders received 82.5 per cent of the equity interests in the reorganised company, the DIP term loans were replaced with loans under the term loan exit facility, and general unsecured creditors were satisfied in full.122
vii Takata Corporation
The debtors in Takata's US Chapter 11 proceedings are Takata Americas, TK Holdings, Inc (TKH), and certain North American affiliates and subsidiaries thereof; they are each direct or indirect subsidiaries of Japanese automotive safety component manufacturer Takata Corporation (TKJP).123 A recent scandal both marred the company's reputation and drove it to the point of insolvency. Some of the company's airbag inflators began exploding upon deployment, spurring the largest automotive recall in the history of the US (60 million recalled, plus 64 million outside the US).124
TKJP and two of its Japanese subsidiaries commenced civil rehabilitation proceedings in Japan on 25 June 2017, and the US debtors sought Chapter 11 protection on the same date. As of the petition date, the debtors had no outstanding funded debt obligations. However, TKJP's funded debt obligations included approximately US$320 million in principal amount of bank debt; and approximately US$269 million in outstanding unsecured bonds.125
In addition, TKJP entered into a plea agreement with the US Department of Justice that obligated it to pay a US$25 million criminal fine and US$975 million of restitution payments to certain victims. The plea agreement permitted TKJP to seek reimbursement or contribution from its affiliates and subsidiaries, including the debtors.126
Upon filing, the debtors were attempting to finalise a sale of substantially all of Takata's global operations to Key Safety Systems, Inc (KSS) for US$1.588 billion, which would allow Takata to pay the balance of the restitution payments and resolve the restructuring quickly. The purpose of the restructuring was primarily to provide breathing room to Takata while it finalised the terms of this global transaction.127
After the debtors amended their Chapter 11 plan in order to gain support from the OEMs, UCC, tort claimants' committee, future claims representative and the Attorneys General Multistate Working Group, Judge Shannon confirmed the KSS sale and commended the debtors on 'a remarkable case' in February 2018. Debtors had similarly resolved objections filed by the US Trustee and the United States on behalf of the IRS, among others. The court overruled outstanding objections submitted by a number of governments, namely pertaining to the subordination of their civil penalty claims, which Judge Shannon had earlier ruled would be susceptible to discharge per a confirmed plan, and to various consumer protection and whistle-blower claims.128 The plan became effective on 11 April 2018.129
IV ANCILLARY INSOLVENCY PROCEEDINGS
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,130 which was granted on 22 July 2016.131 Although Oi has no sizeable assets in the United States, it has strategic commercial agreements with large US telecom carriers related to interconnection fees.132
In April 2017, a Dutch court ordered that two of Oi's subsidiaries enter bankruptcy and begin proceedings to liquidate and repay creditors,133 a ruling affirmed on appeal by the Dutch Supreme Court in July 2017. The two subsidiaries ordered to liquidate (Oi Brasil Holdings Coöperatief UA (Oi Coop) and Portugal Telecom International Finance BV (PTIF)) were responsible for issuing approximately €5.8 billion (US$6.2 billion) of bonds, which represented most of the debtors' outstanding bond debt.134 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.135
In July 2017, Oi Coop sought Chapter 15 recognition of its Dutch restructuring proceedings while revoking the previously granted Chapter 15 recognition of its Brazilian proceedings, arguing that Oi Coop's center of main interests was not in fact Brazil (as previously held by the US court in granting Chapter 15 recognition), but the Netherlands.136 While the motion was filed by the Insolvency Trustee of Oi Coop, it was supported by Aurelius Capital Management, LP and other members of the International Bondholder Committee.137 After trial, the Bankruptcy Court of the Southern District of New York denied the motion to grant Chapter 15 recognition to Oi Coop's Dutch proceedings in a lengthy opinion. Under the two-prong test of 1517(d) (which as a preliminary matter was determined to be the proper legal standard of review)138 the Court determined that the bases for granting Chapter 15 recognition of the Brazilian proceedings was not lacking, and those bases for recognition had not ceased to exist.139 The equities also weighed against granting Chapter 15 recognition of Oi Coop's Dutch proceedings, as the Court found that Aurelius was seeking to 'weaponize' Oi Coop140 to 'double dip' and recover both on the notes directly, as well as recovering against Oi based on its guarantees (the Brazilian judicial recovery plan involved substantive consolidation of the Oi debtors, which eliminated intercompany claims and the opportunity to 'double dip').141 Judge Lane found 'the strategy pursued by Aurelius in these cases [to be] a troubling one that the Court refuses to countenance'. On 14 March 2018, a motion for reconsideration was denied.142
The judicial recovery plan, after approval by a majority of Oi's creditors on 19 and 20 December, was approved by the Brazilian court on 8 January 2018.143 Dutch law composition plans for Oi Coop and PTIF were confirmed by the Court of Amsterdam; the terms of these plans mirror the terms of the Brazilian judicial recovery plan in order to give effect to the judicial recovery plan in other territories like the Netherlands and the United Kingdom.144 The confirmed judicial recovery plan was granted full force and effect and comity in the United States on 15 June 2018145 to permit the issuance of US securities as required under the plan, among other reasons.146 On 31 July 2018, Oi announced that it had completed its restructuring and implemented the terms and conditions of the judicial recovery plan.147
ii Platinum Partners Value Arbitrage Fund LP
Platinum Partners LP (Platinum) was a hedge fund manager whose funds specialised in asset-based loans to troubled companies, combined with other traditional investment strategies.148 Platinum's two primary funds averaged annual returns of 17 per cent from 2003–2015 and 13.4 per cent from 2005–2015.149 In May 2016, a cofounder of Platinum was arrested for bribing a union official in exchange for the union investing in Platinum funds150 (these charges were only the beginning of Platinum's legal troubles).151 Shortly thereafter, Platinum indicated that it would likely return the assets of its Value Arbitrage fund to investors and hired a third party purportedly to ensure an orderly and fair liquidation.152
In August 2016, with Platinum failing to honor redemption requests, Platinum Partners Value Arbitrage Fund L.P. (the Master Fund) and one of the Master Fund's feeder funds, Platinum Partners Value Arbitrage Fund (International) Limited (the International Fund) were placed into liquidation by the Grand Court of the Cayman Islands.153 On 18 October 2016, the liquidators of the Master Fund and the International Fund sought Chapter 15 recognition for the Cayman liquidations as the foreign main proceedings, which was granted on 22 November 2016.154 The order granting this recognition included broad language granting the Cayman liquidators the authority to conduct discovery and 'upon written request, obtain[ ] turnover of any and all documents . . . that are property of, concern or were made or issued on behalf of the Funds . . . .'155 An additional feeder fund, Platinum Partners Value Arbitrage Fund Ltd (the Intermediate Fund) was placed into liquidation, consolidated with other Platinum proceedings and was granted Chapter 15 recognition in October 2017.156 Each of the Master Fund, International Fund and Intermediate Fund (collectively, the Funds) are organised under the laws of the Cayman Islands.
CohnReznick LLP (CohnReznick) provided auditing services to the funds in 2014 and 2015 (though it did not complete its audit in 2015).157 The Cayman liquidators requested documents related to CohnReznick's work with the funds, relying on their rights under Cayman law to investigate the dealings and affairs of the debtors as well as their rights under the Chapter 15 recognition order.158 CohnReznick did not fully comply with the request and, after procedural posturing, the liquidators filed a motion to compel CohnReznick to comply with a document production subpoena and produce the requested documents.159 In granting the motion, the bankruptcy court discussed the broad authority (within reason) for foreign representatives to take discovery concerning the affairs of a foreign debtor, as well as the specific discovery authority under Sections 1521(a)(4) and (7). While the question of whether the requested discovery was permissible under Cayman law was not certain, the court noted that Cayman law did not prohibit the discovery.160
CohnReznick filed a motion for a stay pending appeal of the bankruptcy court's order, which was denied. The Southern District of New York, in denying the appeal, noted that the order authorising discovery was 'comfortably within' the 'broad authority' under Chapter 15 of the Bankruptcy Code (and in particular was within the authority of Sections 1521(a)(4) and (7)).161 The court also noted, 'Chapter 15 expresses a strong preference for providing assistance to foreign representatives in appropriate circumstances. That congressional preference is not to be lightly disturbed.'162
V TRENDS AND OTHER RECENT DEVELOPMENTS
While bankruptcy filings in the United States increased in 2015 and 2016 following a steady decline from their 2009–2010 peak,163 2017 saw a 28 per cent decline in public company bankruptcy filings year-over-year from 2016.164 While certain observers believe that 2018 will see an increase in the number of bankruptcy filings165 and certain industries, notably retail, have already shown an uptick in filings,166 other indicators suggest that the number of bankruptcy filings may decline further.167
The sections below highlight recent trends in the energy and retail sectors, and 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 high number of bankruptcies over the past few years despite the general availability of cheap credit. According to a report from Haynes and Boone LLP, from the beginning of 2015 through 31 March 2018, 167 oilfield services companies and 144 oil and gas producers filed for bankruptcy.168 In 2017, the pace of oil and gas bankruptcies slowed as many companies have cycled through Chapter 11 and higher commodity prices provided some relief. E&P bankruptcy filings decreased by 67 per cent year-over-year in 2017.169
Despite the continued challenges facing the industry, there is growing optimism that the energy industry is rebounding. One of the determinative factors that could facilitate (or hinder) an industry recovery is the price of oil. To drill profitably at low oil prices, 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.170 For these and other reasons, the price of oil will continue to play a determinative role in whether the growing optimism yields continued material improvement. As of August 2018, oil was trading at around US$70 a barrel,171 a substantial rebound from the 2016 prices that were a primary driver of the recent wave of energy bankruptcies (with prices dipping below US$30).172 Furthermore, one of the largest and most complex bankruptcies in history, In re: Energy Future Holdings Corp, et al., finally went effective in March 2018.173
Despite the improved market environment, there remains plenty of bankruptcy activity in the energy industry. Recent notable energy bankruptcies include Ascent Resources Marcellus Holdings, LLC,174 Cobalt International Energy Inc,175 FirstEnergy Solutions Corp,176 EV Energy Partners LP,177 EXCO Resources Inc,178 Expro Holdings US Inc179 and Fieldwood Energy LLC.180 Furthermore, while the rate of bankruptcy filings in the energy industry has recently decreased, there is evidence that the amount of debt restructured by such bankruptcies may actually be increasing, suggesting that larger, more complex energy companies remain at substantial risk. For instance, the aggregate debt of E&P bankruptcy debtors in the first quarter of 2018 not only almost equalled the aggregate debt of E&P bankruptcy debtors in FY 2017, but it also exceeded the aggregate debt of E&P bankruptcy debtors at the nadir of oil prices in the first quarter of 2016.181
Retail industry downturn
While the energy industry has shown signs of life, the retail industry finds itself squarely in the midst of the 'retail apocalypse' (or, perhaps more charitably, the 'retail pandemic').182 Retailers accounted for one-third of all corporate defaults in the first quarter of 2018,183 and notable retailers filing for bankruptcy in 2018 (all on or before 1 May) include A'GACI, LLC,184 Claire's Stores, Inc,185 Gibson Brands, Inc,186 Kiko USA, Inc,187 Nine West Holdings, Inc,188 Remington Outdoor Company, Inc,189 Southeastern Grocers, LLC,190 The Bon-Ton Stores, Inc,191 The Walking Company Holdings, Inc192 and Tops Holding II Corporation.193 More of the same is expected through the remainder of 2018 and the retail industry is expected to easily exceed the number of debt defaults seen in 2017.194 Furthermore, certain high-profile retail Chapter 11 filings have been unable to reorganise as going concerns and have been wound down or liquidated.195
While bankruptcies in the retail space in 2017 and early 2018 have been occurring with striking frequency, the trend has been developing for some time. In March 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.196 In 2017 the downturn continued; a number of well-known brands sought bankruptcy protection in 2017, including Gymboree, rue21, Payless Shoes and Toys 'R' Us. Underscoring the pressure on brick-and-mortar operations, JCPenney, Staples and Abercombie & Fitch, among others, have closed several hundred stores in the past few years.197 Retail store locations closed in the first half of 2018 at an even faster rate than they did in 2017.198
Dynamics in the retail industry have created myriad operational challenges for retailers, despite the overall health of the economy. Recent market headwinds for retailers include a shift from traditional brick-and-mortar stores to online shopping sites (most notably, but not exclusively, Amazon), a highly competitive market with an oversaturation of malls and a shift in consumer spending from goods to travelling and dining.199 These dynamics have left retailers with insufficient revenue to cover high fixed costs such as leases for their stores,200 in addition to the costs of servicing excessive amounts of debt.201
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.202 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.203
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 Corp204 has recently made clear, however, that priority deviations implemented through non-consensual structured dismissals are not permitted. Commentators and courts are still grappling with the ultimate scope of Jevic;205 while certain courts have interpreted Jevic broadly to deny priority-skipping distributions that are not tied to 'a significant Code-related objective';206 other courts have read Jevic narrowly and approved priority-skipping distributions in connection with a Chapter 11 plan207 or a settlement.208
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 trend in the industry has been towards more DIP lenders insisting on more restrictive milestones in DIP covenants (though there have been recent exceptions to this trend, notably Toys 'R' Us). 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.
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 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. 11 544(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
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 National Income and Product Accounts: Gross Domestic Product: Second Quarter 2018 (Advance Estimate) and Comprehensive Update (27 July 2018) available at https://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm.
47 Federal Reserve Board, New Securities Issues, US Corporations, (July 2018) available at www.federalreserve.gov/econresdata/releases/corpsecure/current.htm.
49 United States Department of Treasury, Daily Yield Curve Rates, (last accessed 7 August 2018) available at https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2018.
51 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.
52 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2017 (last accessed 10 July 2018), available at https://www.thomsonreuters.co.jp/content/dam/openweb/documents/pdf/japan/market-review/2017/ecm-4q-2017-e.pdf.
55 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2016 (last accessed 10 July 2018), available at http://share.thomsonreuters.com/general/PR/ECM_4Q_2016_E.pdf.
56 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2015 (last accessed 18 July 2018), available at http://dmi.thomsonreuters.com/Content/Files/4Q2015_Global_Equity_Capital_Markets_Review.pdf.
57 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2016 (last accessed 10 July 2018), available at http://share.thomsonreuters.com/general/PR/ECM_4Q_2016_E.pdf.
58 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2015 (last accessed 18 July 2018), available at http://dmi.thomsonreuters.com/Content/Files/4Q2015_Global_Equity_Capital_Markets_Review.pdf.
59 Moody's Investor Services Announcement: Global Speculative-Grade Default Rate Down Again in May, (June 11, 2018), available at https://www.moodys.com/research/Moodys-Global-speculative-grade-default-rate-down-again-in-May--PR_384994.
60 Moody's Investor Services Announcement: US Speculative-Grade Default Rate Swings Higher in Q1 2018; Retail Defaults Increase (May 1, 2018), available at https://www.moodys.com/research/Moodys-US-speculative-grade-default-rate-swings-higher-in-Q1--PR_383170.
62 Moody's Investor Services Announcement: Retail Corporate Defaults Hit All-Time High in First Quarter 2018 (10 April 2018), available at https://www.moodys.com/research/Moodys-Retail-corporate-defaults-hit-all-time-high-in-first--PR_382085.
63 United States Courts, US Bankruptcy Courts – Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12-Month Period Ending June 30, 2010, available at www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2010/0610_f2.pdf.
64 PRWeb, BankruptcyData's 2017 Bankruptcy Review: Public Company Bankruptcies Down 28% but Uptick Predicted (11 January 2018), available at https://www.prweb.com/releases/2018/01/prweb15076565.htm.
67 See footnotes 275- and accompanying text.
68 The Turnaround Letter, Largest Bankruptcies of 2018, available at https://www.turnaroundletter.com/largest-bankruptcies-this-year.
69 United States Courts, US Bankruptcy Courts – Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12-Month Period Ending June 30, 2018, available at www.uscourts.gov/sites/default/files/bf_f2_0630.2018.pdf.
70 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 2017, available at www.uscourts.gov/sites/default/files/data_tables/bf_f2_0630.2017.pdf.
71 Declaration of David A. Brandon, Chairman of the Board and Chief Executive Officer of Toys 'R' Us, Inc., in Support of Chapter 11 Petitions and First Day Motions, Case No. 17-34665, ECF No. 20 at 3–4 (Bankr. E.D. Va. 19 September 2017).
72 id. at 10–11.
73 id. at 11–12.
74 id. at 6.
75 Debtors' Omnibus Motion for Entry of Orders: (I) Authorizing the Debtors to Wind-Down U.S. Operations, (II) Authorizing the Debtors to Conduct U.S. Store Closings, (III) Establishing Bidding Procedures for the Sale of the Debtors' Canadian Equity, (IV) Enforcing an Administrative Stay, and (V) Granting Related Relief, Case No. 17-34665, ECF No. 2050 (Bankr. E.D. Va. 15 March 2018).
76 Order (I) Authorizing the Debtors to Wind-Down U.S. Operations, (II) Authorizing the Debtors to Conduct U.S. Store Closings, (III) Establishing Administrative Claims Procedures, and (IV) Granting Related Relief, Case No. 17-34665, ECF No. 2344 (Bankr. E.D. Va. 22 March 2018).
77 Debtors' Motion for Entry of an Order (I) Approving (A) the Settlement Agreement, (B) Opt-Out Procedures Applicable to the Settlement Agreement, and (C) a Substantial Contribution Claim Under Section 503(B)(3)(D) of the Bankruptcy Code; and (II) Granting Related Relief, Case No. 17-34665 (KLP), ECF No. 3814 (Bankr. E.D. Va. 17 July 2018).
78 Order (I) Approving (A) the Settlement Agreement, (B) Opt-Out Procedures Applicable to the Settlement Agreement, and (C) a Substantial Contribution Claim Under 503(b)(3)(D) of the Bankruptcy Code; and (II) Granting Related Relief, Case No. 17-34665, ECF No. 4083 (Bankr. E.D. Va. 8 Aug. 2018).
79 'Canada's Toy Store is Here to Play, Here to Stay: Sale of Toys “R” Us and Babies “R” Us (Canada) to Fairfax Financial Holdings Limited is Complete', Newswire (1 June 2018), available at https://www.newswire.ca/news-releases/canadas-toy-store-is-here-to-play-here-to-stay--sale-of-toys-r-us-and-babies-r-us-canada-to-fairfax-financial-holdings-limited-is-complete-684257391.html
80 Declaration of Scott E. Huckins in Support of Debtors' Chapter 11 Petitions and First Day Relief, Case No. 18-10584, ECF No. 10 at 2–3 (Bankr. D. Del. 19 Mar. 2018).
81 'Claire's to Implement Balance Sheet Restructuring Supported by Holders of Substantial Majority of Company's Funded Debt', Reorg Research (19 Mar. 2018), available at https://platform.reorg-research.com/app#company/1912/wires/view/5aaf7ec36bfe09932c8b4964.
82 Declaration of Scott E. Huckins in Support of Debtors' Chapter 11 Petitions and First Day Relief, Case No. 18-10584, ECF No. 10 at 17 (Bankr. D. Del. 19 Mar. 2018).
83 id. at 6.
85 'Judge Walrath Overrules Oaktree Objections, Approves Claire's DS, Rights Offering Procedures; Confirmation Hearing Set for Week of Sept. 17', Reorg Research (20 July 2018), available at
86 Objection of Oaktree Capital Management to the Debtors Motion for Entry of Order (I) Approving the Proposed Disclosure Statement and Form and Manner of Notice of Disclosure Statement Hearing, (II) Establishing Solicitation and Voting Procedures, (III) Scheduling Confirmation Hearing, (IV) Establishing Notice and Objection Procedures for Confirmation of the Proposed Plan, and (V) Granting Related Relief, Case No. 18-10584, ECF No. 602 at 2 (Bankr. D. Del. 12 July 2018).
87 Oaktree Capital Management, L.P.'s (A) Objection to Motion of Debtors Pursuant to 11 U.S.C. § 1121(d) for Entry of an Order (I) Extending Their Exclusivity Periods and (II) Granting Related Relief and (B) Cross-Motion to Amend the Scheduling Order and Solicitation Order if Exclusivity Expires, Case No. 18-10584, ECF No. 732 (Bankr. D. Del. 3 Aug. 2018).
88 Motion of Oaktree Capital Management, L.P. for Entry of an Order Granting Derivative Standing and Authority to Prosecute and Settle Claims on Behalf of Certain of the Debtors, Case No. 18-10584, ECF No. 649 (Bankr. D. Del. 19 July 2018).
89 Declaration of Mark A. McFarland in Support of Chapter 11 Petitions and First Day Motions, Case No. 17-33695, ECF No. 19 at 6–7 (Bankr. S.D. Tex. 14 June 2017).
90 id. at 6.
91 id. at 4.
93 id. at 11.
94 Peg Brickley, “Fight With Power Plant Owners Snarls GenOn's Restructuring', Wall Street Journal (September 13, 2017), available at https://www.wsj.com/articles/fight-with-power-plant-owners-snarls-genons-restructuring-1505330723
95 'GenOn Claims Estimation Hearing Day 10: Judge Jones Estimates Claims at $0', Reorg Research (11 November 2017), available at https://platform.reorg-research.com/app#company/4119/intel/view/44740.
96 'Judge Jones Confirms GenOn Plan, Emergence Set to Occur in Mid-2018; Certain Certificate Holders Do Not Yet Support GenMA Settlement', Reorg Research (12 December 2017), available at https://platform.reorg-research.com/app#company/4119/intel?q=estimation&caseId=0&startDate=&endDate=§orIds=0&keyStoriesOnly=0.
97 Notice of Filing of Sixth Amended Plan Supplement, Case No. 17-33695, ECF No. 1555 at 3–4 (Bankr. S.D. Tex. 4 April 2018).
98 Declaration of Donald R. Schneider in Support of Chapter 11 Petitions and First Day Motions, Case No. 18-50757, ECF No. 55 at 6 (Bankr. N.D. Ohio 1 April 2018).
99 id. at 6–7.
100 id. at 29–21.
101 Complaint for Declaratory Judgment, Preliminary and Permanent Injunction against the Federal Energy Regulatory Commission, Adv. Pro. No. 18-05021, ECF No. 1 (Bankr. N.D. Ohio 1 Apr. 2018).
102 id. at 2–3.
103 In re Calpine Corp., 337 B.R. 27 (S.D.N.Y. 2006).
104 id. at 38.
105 'FES Debtors Prevail on Requests to Reject OVEC, Maryland Solar PPAs; Court Overrules Objections While Preserving Certain Appellate Rights', Reorg-Research (31 July 2018), available at https://platform.beta.reorg-research.com/v3#/items/intel/4311?item_id=58131.
107 FirstEnergy Corp., Form 8-K, filed 1 Aug. 2018, available at https://www.sec.gov/Archives/edgar/data/1031296/000119312518234013/d543977d8k.htm.
108 Declaration of Brian Coleman, Senior Vice President and Treasurer of iHeartMedia, Inc., in Support of Chapter 11 Petitions and First Day Motions, Case No. 18-31274, ECF No. 25 at 1–2 (Bankr. S.D. Tex. 15 March 2018).
109 id. at 1–3.
110 id. at 20–21.
111 id. at 6.
112 id at 35.
113 'WSFS Files Adversary Proceeding to 'Protect Legacy Noteholders' Rights'; Seeks Constructive Trust or Equitable Lien Over Springing Lien Collateral', Reorg Research (21 March 2018), available at
114 'UPDATE 4: iHeart, Senior Creditors, 14% Notes Trustee Stipulate to Abeyance of Claims, Counterclaims
Pending Adjudication of WSFS Adversary,' Reorg Research (10 July 2018), available at
115 Amended Joint Chapter 11 Plan of Reorganization of iHeartMedia, Inc. and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code, Case No. 18-31274, ECF No. 1213 (Bankr. S.D. Tex. 5 Aug. 2018).
116 'iHeart UCC Says Current Plan is “Unconfirmable,” Seeks Standing to Prosecute 'Potentially' 'Billions of Dollars' of Avoidance Claims Against Term Loans, PGNs,' Reorg Research (10 July 2018), available at https://platform.reorg-research.com/app#company/2897/intel?q=fraudulent+transfer&caseId=0&startDate=&endDate=§orIds=0&keyStoriesOnly=0.
117 'UPDATE 2: Citing “Unique Role” in iHeart Chapter 11 Cases, Legacy Notes Trustee Wilmington Savings Fund Society Joins UCC Motion for Derivative Standing', Reorg Research (11 July 2018), available at https://platform.reorg-research.com/app#company/2897/intel/view/57097.
118 'iHeart Judge Abates UCC's Standing Motion on Consensual Basis; UCC Willing to Hold Standing Motion “In Suspense” for Time Being', Reorg Research (8 August 2018), available at https://platform.beta.reorg-research.com/v3#/items/intel/?keyword=iheart&smartFilter=0.
119 Declaration of Stephen P. Jackson, Jr. in Support of Chapter 11 Petitions and First Day Pleadings of Remington Outdoor Company, Inc. and Its Affiliated Debtors and Debtors in Possession, Case No. 18-10684, ECF No. 7 at (Bankr. D. Del 25 March 2018).
120 id. at 6–12.
121 'Update 1: Remington Receives Uncontested Second Day Relief Including Final DIP Approval', Reorg Research (April 16, 2018), available at https://platform.reorg-research.com/app#company/5228/intel?q=&caseId=0&startDate=&endDate=§orIds=0&keyStoriesOnly=1.
122 'Remington Prepack Plan Goes Effective', Reorg Research (17 May 2018), available at
123 Declaration of Scott E. Caudill in Support of Debtors' Chapter 11 Petitions and First Day Relief, Case No. 17-11375, ECF No. 19 at (Bankr. D. Del 26 June 2017).
124 id. at 4–5.
125 id. at 26.
126 id. at 8.
127 id. at 12.
128 'Takata Achieves Confirmation for KSS Sale Plan; Judge Commends “Remarkable” Case,' Reorg Research (February 16, 2018), available at https://platform.reorg-research.com/app#company/4924/intel?q=&caseId=0&startDate=&endDate=§orIds=0&keyStoriesOnly=1.
129 'Takata Debtors' Plan of Reorganization Goes Effective', Reorg Research (11 April 2018), available at https://platform.reorg-research.com/app#company/4924/intel?q=&caseId=0&startDate=&endDate=§orIds=0&keyStoriesOnly=1.
130 Rogerio Jelmayer and Luciana Magalhaes, 'Telecom Oi Files Largest Bankruptcy Request in Brazil's History', Wall Street Journal (June 20, 2016) available at https://www.wsj.com/articles/telecom-oi-files-largest-bankruptcy-request-in-brazils-history-1466463734.
131 Order Granting Recognition of Foreign Main Proceeding and Certain Related Relief, Case No. 16-11791, ECF No. 38 (Bankr. S.D.N.Y. 22 July 2016).
132 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.
133 '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.
136 In re Oi Brasil Holdings Cooperatief U.A., 578 B.R. 169, 175 (Bankr. S.D.N.Y. 2017), reconsideration denied, 582 B.R. 358 (Bankr. S.D.N.Y. 2018).
138 id. at 175–76.
139 id. at 176.
140 id. at 200.
141 id. at 235–36.
142 In re Oi Brasil Holdings Cooperatief U.A., 582 B.R. 358 (Bankr. S.D.N.Y. 2018).
143 'Oi's Restructuring Plan Gets Court Approval; Shareholders to Proceed with Meeting', Reorg Research
(8 Jan. 2018), available at https://platform.beta.reorg-research.com/v3/#/items/intel/2452?item_id=47569.
144 Oi S.A. - In Judicial Reorganization - Notice to the Market (11 June 2018), available at http://ri.oi.com.br/oi2012/web/conteudo_en.asp?idioma=1&conta=44&tipo=43100&id=253560.
145 Order (I) Granting Full Force and Effect in the United States to the Brazilian Reorganization Plan and (II) Granting Related Relief, Case No. 16-1179, ECF No. 277 (Bankr. S.D.N.Y. 15 June 2018).
146 In re Oi S.A., No. 16-11791 (SHL), 2018 WL 3372740, at *11 (Bankr. S.D.N.Y. 9 July 2018).
147 Oi S.A. - In Judicial Reorganization – Notice to the Market (31 July 2018), available at http://ri.oi.com.br/oi2012/web/conteudo_en.asp?idioma=1&tipo=43100&conta=44&id=254427.
148 Lawrence Delevingne, 'The Top-Performing Hedge Fund Manager That's Too Hot for Big Money to Handle', Reuters (13 April 2016), available at https://www.reuters.com/investigates/special-report/usa-hedgefunds-platinum/.
150 Corinne Ramey, 'Platinum Partners' Co-Founder Pleads Guilty to Fraud', Wall Street Journal (May 25, 2018), available at https://www.wsj.com/articles/platinum-partners-co-founder-pleads-guilty-to-fraud-1527284915. The co-founder, Murray Huberfeld, pled guilty to a single count of wire fraud conspiracy in May 2018. Id.
151 In re Platinum Partners Value Arbitrage Fund L.P., No. 18CV5176 (DLC), 2018 WL 3207119, at *1 (S.D.N.Y. 29 June 2018) ('On December 14, 2016, a federal grand jury in the Eastern District of New York indicted certain senior executives of Platinum Management on charges of conspiracy, securities fraud, investment advisor fraud, and wire fraud in connection with their management of the Funds. On 19 December 2016, the Securities and Exchange Commission (SEC) filed a complaint against Platinum Management and the indicted individuals seeking relief for their allegedly fraudulent activities.').
152 Lawrence Delevingne, 'Platinum Partners to liquidate two main funds amid government probes', Reuters (20 July 2016), available at https://www.reuters.com/article/us-hedgefunds-platinum/platinum-partners-to-liquidate-two-main-funds-amid-government-probes-idUSKCN10029U.
153 In re Platinum Partners Value Arbitrage Fund L.P., No. 18CV5176 (DLC), 2018 WL 3207119, at *1 (S.D.N.Y. June 29, 2018).
155 In re Platinum Partners Value Arbitrage Fund L.P., 583 B.R. 803, 807 (Bankr. S.D.N.Y. 2018) (internal citations omitted).
156 In re Platinum Partners Value Arbitrage Fund L.P., No. 18CV5176 (DLC), 2018 WL 3207119, at *1, n.1 (S.D.N.Y. June 29, 2018).
157 id. at *2 .
158 id. at *1.
160 See also In re Platinum Partners Value Arbitrage Fund L.P., 583 B.R. 803, 815 (Bankr. S.D.N.Y. 2018) ('Although the boundaries of the international comity doctrine have been described as “amorphous” and “fuzzy”, it is well established that comity does not require that the relief available in the United States be identical to the relief sought in the foreign bankruptcy proceeding; it is sufficient if the result is comparable and that the foreign laws are not repugnant to our laws and policies.').
161 In re Platinum Partners Value Arbitrage Fund L.P., No. 18CV5176 (DLC), 2018 WL 3207119, at *4 (S.D.N.Y. 29 June 2018).
163 The 2014 Bankruptcy Yearbook and Almanac (see footnote 57), at 16.
164 See above, note 65.
165 id.; Kumar Kanthan, et al., 'Moody's: Retail Corporate Defaults Hit All-Time High in First Quarter 2018', Moody's (10 April 2018) available at https://www.moodys.com/research/Moodys-Retail-corporate-defaults-hit-all-time-high-in-first--PR_382085 ('Despite the recent uptick in the US, Moody's expects the global speculative-grade default rate to decline to 1.8% at the end of 2018 before falling to 1.4 per cent a year from now.').
166 E.g., Gene Marks, 'More Retailers than Ever are Going Bankrupt', The Washington Post (16 April 2018), available at https://www.washingtonpost.com/news/on-small-business/wp/2018/04/16/more-retailers-are-going-bankrupt-than-ever/?noredirect=on&utm_term=.c7dc7a1d7d15.
167 See note 70–71 and accompanying text.
168 'Haynes and Boone, LLP Oil Patch Bankruptcy Monitor' (31 March 2018), available at www.haynesboone.com/-/media/files/energy_bankruptcy_reports/2018/oil_patch_bankruptcy_monitor_03312018.ashx?la=en&hash=8021569995B94F8BF7B8573F30B1DF157CCDDF11.
169 See note 261.
170 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.
171 Source: Bloomberg Finance LP.
172 Jim Christie, 'Report Says Energy Industry Bankruptcies Fewer But Bigger', 65 No. 14 Bankr. Ct. Dec. News 2 (10 May 2018).
173 Notice of Entry of EFH Confirmation Order and Occurrence of EFH Effective Date, Case No. 14-10979, ECF No. 12801 (Bankr. D. Del. 9 March 2018); see also Mark Curriden, 'A Three-Minute Call and Two Multi-Billion-Dollar Wire Transfers: The End of Energy Future Holdings', The Texas Lawbook (14 March 2018), available at https://www.bizjournals.com/dallas/news/2018/03/14/a-three-minute-call-and-two-multi-billion-dollar.html.
174 Case No. 18-10265 (Bankr. D. Del.; filed 6 Feb. 2018).
175 Case No. 17-36709 (Bankr. S.D. Tex.; filed 14 Dec. 2017).
176 Case No. 18-50757 (Bankr. N.D. Oh.; filed 31 March 2018).
177 Case No. 18-10814 (Bankr. D. Del.; filed 2 April 2018).
178 Case No. 18-30155 (Bankr. S.D. Tex.; filed 15 Jan. 2018).
179 Case No. 17-60179 (Bankr. S.D. Tex.; filed 18 Dec. 2017).
180 Case No. 18-30648 (Bankr. S.D. Tex.; filed 15 Feb. 2018).
181 See note 261.
182 Pamela N. Danziger, 'Retail's Bankruptcy Pandemic May Have Peaked, But It's Not Over Yet', Forbes (4 Dec 2017), available at https://www.forbes.com/sites/pamdanziger/2018/03/14/retails-bankruptcy-pandemic-may-have-peaked-but-its-not-over-yet/#40b7c06f1680.
183 Matt Egan, 'Retail Defaults Soar to Record High In 2018', CNN (10 April 2018), available at https://money.cnn.com/2018/04/10/investing/retail-defaults-sears-moodys/index.html.
184 Case No. 18-50049 (Bankr. W.D. Tex.; filed 9 Jan. 2018).
185 Case No. 18-10584 (Bankr. D. Del.; filed 19 March 2018).
186 Case No. 18-11025 (Bankr. D. Del.; filed 1 May 2018).
187 Case No. 18-10069 (Bankr. D. Del.; filed 11 Jan. 2018).
188 Case No. 18-10947 (Bankr. S.D.N.Y.; filed 6 April 2018).
189 Case No. 18-10684 (Bankr. D. Del.; filed 25 March 2018).
190 Case No. 18-10700 (Bankr. D. Del.; filed 27 March 2018).
191 Case No. 18-10248 (Bankr. D. Del.; filed 4 Feb. 2018).
192 Case No. 18-10475 (Bankr. D. Del.; filed 6 March 2018).
193 Case No. 18-22279 (Bankr. S.D.N.Y.; filed 21 Feb. 2018); see also Rebecca McClay, '2018: The Year of Retail Bankruptcies', Investopedia (4 May 2018), available at https://www.investopedia.com/news/year-retail-bankruptcies-looms-m/.
194 Ciara Linnane, 'Retail Defaults May Increase in 2018 as Companies are Still Stressed', MarketWatch (4 March 2018); available at https://www.marketwatch.com/story/retail-sector-may-see-more-defaults-in-2018-than-2017-sp-cautions-2018-03-01.
195 See footnotes 99–109 and accompanying text; Lillian Rizzo, 'Bon-Ton to Liquidate Stores', Wall Street Journal (18 April 2018), available at https://www.wsj.com/articles/bon-ton-to-liquidate-stores-1524090764.
196 '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/.
197 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.
198 See Linnane, note 287.
199 Derek Thompson, 'What in the World Is Causing the Retail Meltdown of 2017?' The Atlantic (10 April 2017), available at https://www.theatlantic.com/business/archive/2017/04/retail-meltdown-of-2017/522384/.
200 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 stand-alone entity. See Lawrence C. Gottlieb, 'The Disappearance of Retail Reorganizations Under the Amended Section 365(d)(4)', available at
201 See Linnane, note 287.
202 In re DBSD North America, Inc, 634 F.3d 79 (2d Cir. 2011).
203 In re ICL Holding Company, Inc, No. 14-2709 (3d Cir. 2015).
204 137 S. Ct. 973, 986 (2017).
205 E.g., Robert J. Keach & Andrew C. Helman, 'Life After Jevic: An End to Priority-Skipping Distributions?', Am. Bankr. Inst. J., September 2017, at 12, 74.
206 In re Fryar, 570 B.R. 602, 610 (Bankr. E.D. Tenn. 2017); see also In re Pioneer Health Svcs., Inc., 570 B.R. 228, 235 (Bankr. S.D. Miss. 2017) (requiring a 'significant offsetting bankruptcy related justification' to justify critical vendor payments, citing Jevic).
207 In re Nuverra Environmental Solutions, No. 17-10949 (Bankr. D. Del. 24 July 2017).
208 In re Short Bark Industries Inc., No. 17-11502 (Bankr. D. Del. 11 Sept. 2017).