The Insolvency Review: USA

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:

  1. trustee-administered liquidation (Chapter 7);
  2. municipality bankruptcy (Chapter 9);
  3. debtor-in-possession (DIP) managed reorganisation or liquidation (Chapter 11);
  4. family farmer and fisherman bankruptcies (Chapter 12);
  5. individual bankruptcies (Chapter 13);7 and
  6. 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.

Safe harbours

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

The absolute priority rule

Another key tenet of US insolvency law is the absolute priority rule. The absolute priority rule provides that, absent class consent, creditors with higher priority must be paid in full before creditors of lower priority or equity holders 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 of the requisite majority of their class, secured claims must be paid in full before general unsecured creditors receive any recovery from the secured creditor's collateral. Similarly, because equity holders have the lowest priority, in the absence of consent, they cannot receive any distribution until all creditors have received distributions with a value equal to their allowed claims. Consent to the payment of a junior class can be obtained through a vote of the senior class on a plan of reorganisation.16

Avoidance actions

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

  1. 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
  2. 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
  3. avoidance of unperfected security interests, which enables a debtor to avoid liens on property if such liens were not perfected under applicable non-bankruptcy law prior to the commencement of the bankruptcy case.19

ii Policy

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

iii Insolvency procedures

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

Chapter 7

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

Chapter 11

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

The culmination of a Chapter 11 proceeding is the confirmation 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 equity 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 (also known as the absolute priority rule, described above).

The plan of reorganisation is filed together with a disclosure statement and 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 of the plan, excluding insider yes votes, the plan can be confirmed over even if rejected by another impaired class. Dissenting classes can thus be 'crammed down' so long as the plan is fair and equitable with respect to such class (that is, satisfies the absolute priority rule with respect to such class) and does not discriminate unfairly among similarly situated creditors. Once the plan is approved by the necessary stakeholders, a court can confirm a plan so long as certain other prerequisites of Section 1129 of the Bankruptcy Code are satisfied.

Chapter 15

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

iv Starting proceedings

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

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

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

v Control of insolvency proceedings

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

Chapter 11 proceedings allow for the debtor's existing management and directors to stay in place and operate the business during the bankruptcy case. For this reason, a debtor in a Chapter 11 proceeding is referred to as the 'debtor-in-possession or 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 the court determines there is cause (for example, fraud or gross mismanagement) or that 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. However, despite the enactment of OLA, these resolution plans must demonstrate how the financial institution would be resolved under the Bankruptcy Code.

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 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 file for Chapter 11, even if their principal place of business, or centre of main interest, is located outside the United States. This trend is illustrated by companies 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

Insolvency metrics

The US economy experienced a tumultuous 2020, largely as a result of the onset of the pandemic and its impact on economic activity. The second quarter of 2020 saw real GDP decline by 31.4 per cent, followed by a swift 33.4 per cent rebound in the following quarter.45 Since the third quarter of 2020, GDP growth has continued, albeit at a lesser rate: 4.3 per cent in the fourth quarter of 2020 and 6.4 per cent in the first quarter of 2021.46 Covid-19 took a heavy toll on the seasonally adjusted unemployment rate. While the pre-covid unemployment rate was generally consistent with those seen in 2019 – the February 2020 unemployment rate was 3.5 per cent – the unemployment rate increased to 4.4 per cent in March and proceeded to exceed 10 per cent until August 2020.47 As of May 2021, unemployment was down to 5.8 per cent, but while this 5.8 per cent figure represents a marked improvement from the April 2020 high of 14.8 per cent, one would have to go back nearly seven years to November 2014 to see this figure in non-pandemic times.48

The capital markets were extremely robust despite the pandemic.49 In 2020, US corporations issued over US$2.397 trillion in bonds, outpacing the roughly US$1.751 trillion and US$1.526 trillion issued in 2019 and 2018, respectively.50 The first three months of 2021 saw this activity continue, with over US$665 billion of bonds issued.51 As of mid-June 2021, the 10-year Treasury rate has ranged between 1.74 per cent and 0.93 per cent in the current calendar year,52 while in 2020, the rate ranged between 1.88 per cent and 0.52 per cent.53

Similarly, the pandemic brought notable changes to the US equity markets. While 2019 had seen roughly US$168 billion in stock issued, 2020 saw that number increase to US$335 billion.54 As for US initial public offerings, in 2020, both deal count and dollar proceeds were up from 2019.55 The equity markets continued to boom in the first three months of 2021; in those three months, US companies issued over US$176 billion of stock, surpassing the figure for the entirety of 2019.56 With uncertainties surrounding pandemic conditions, as well as the rise of retail investors and 'meme stocks',57 it is unclear whether this activity will be a lasting phenomenon.

US corporate default rates have fluctuated since 2018. Moody's measured the US speculative-grade default rate in March 2021 at 7.5 per cent,58 compared to default rates of 8.4 per cent59 in the end of 2020 and 4.2 per cent in the end of 2019.60 However, Moody's further projected that this rate would continue to fall further below the long-term average by year end.61 S&P Global indicated that the leveraged loan default rate ended 2020 at 3.83 per cent,62 compared with the average rate in 2019 of around 1.8 per cent.63

In 2020, the pandemic resulted in a large increase in business bankruptcy filings, with mandatory shutdowns and drops in demand for goods and services. Throughout the year, 110 public companies filed for Chapter 7 or Chapter 11 proceedings, up from 64 filings in 2019.64 Furthermore, the amount of assets going into bankruptcy in 2020 was US$292.7 billion, the highest number since 2009, which far surpassed 2019's asset value of US$150 billion .65 The upward trend will likely abate if recovery from the pandemic continues in following years, and filings in 202166 are down considerably, but the fallout from the pandemic remains to be seen fully.

The number of foreign bankruptcy proceedings under Chapter 15 also almost doubled, with 221 in 2020 and 113 in 2019.67 As stated above, the true impact that the covid-19 pandemic will have on the bankruptcy filings for the current year remains to be seen; however, as noted below, there was a steep decline in bankruptcy filings in early 2021.

Plenary insolvency proceedings

In last year's edition of this review, we discussed the emerging trend of international airlines taking advantage of the Bankruptcy Code's liberal eligibility requirements for qualifying as a debtor in a US bankruptcy case. We analysed the early phases of the Avianca68 Chapter 11 cases, including the dispute relating to the sale of its receivables to USAV, an offshore special purpose vehicle that issued US$150 million in financing for the purchase of such receivables (and received primary and guarantee claims against the debtors related thereto). This year's edition will discuss recent developments in the Avianca case, and will further explore the cases of two other Latin American airlines, LATAM and Aeroméxico.

i Avianca

At the time last year's edition of this review was released, the court had recently granted Avianca's motion to reject certain USAV agreements, which had the effect of eliminating the debtors' obligation to continue to transfer its accounts receivable to USAV. On 17 March 2021, after numerous developments including a court-ordered mediation, the bankruptcy court approved a settlement with USAV, which the debtors' counsel described as a major development that: (1) would release approximately US$30 million in cash currently held in escrow; and (2) give the debtors assurance that they can emerge with solid receivables financing in place.69 Among other things, the settlement (1) consensually dismissed all litigation matters between USAV and the debtors; (2) restructured the prepetition loan facility with US$67 million 'net obligations' balance, which 'reflects the application of the funds swept by Citibank to repay principal, interest, and other obligations owing under the [transaction documents]'; (3) reinstated the lenders' guarantee claims under the plan of reorganisation; (4) extended the maturity under the loan; and (5) provided the debtors with access to the remaining trapped funds, after application if the amounts referred to in (2).70 The approval of the USAV settlement constituted a major milestone in Avianca's Chapter 11 cases that provided the debtors with additional liquidity and resolved costly litigation.

The resolution of the USAV dispute further enabled the debtors to focus on three critical goals: (1) obtaining debtor in possession financing (DIP financing) during an international pandemic that forced the company to file for Chapter 11; (2) fleet rationalisation (i.e., right-sizing the debtors' 'fleet to its optimal structure at emergence given the debtors' long-term business plan and minimizing obligations under the debtors' aircraft and engine leases); and (3) resolving disputes, if any, with its large workforce.

Last year's edition of this chapter discussed Avianca's proposed US$1.3 billion Tranche A DIP facility (which included approximately US$400 million of roll up dip loans with existing lenders) and US$700 million Tranche B DIP facility. On 30 August 2020, it was announced that the Colombian government would participate in the DIP facility in an aggregate principal amount of up to US$370 million.71 Then, on 11 September 2020, the Administrative Court of Cundinamarca issued an injunction blocking this participation, noting that government had failed to provide adequate transparency on the process that led it to extend the commitment.72 Nonetheless, after filing a DIP financing motion in the bankruptcy court and appealing the decision of the Colombian court, the bankruptcy court approved the DIP facility on 5 October 2020. Among other things, the DIP facility contained an equity conversion feature, which was also present in the LATAM and Aeroméxico DIP facilities (as discussed below). On 12 February 2021, the company announced that it was in further discussions with the Tranche B DIP lenders over the equity conversion terms.73 Most recently, on 22 July 2021, the debtors filed a motion seeking approval of new 'DIP to exit' facilities, pursuant to which, the debtors would incur US$1.05 billion of new Tranche A-1 loans and US$550 million of new Tranche A-2 loans, the proceeds of which would be used to: (1) refinance the existing Tranche A DIP loans; and (2) provide the debtors with US$220 million of additional liquidity.74 Under certain conditions, the new DIP loans would convert to seven-year exit loans upon emergence from Chapter 11.

With respect to labour, on 28 October 2020, the debtors announced that 'following constructive conversations with different employee associations regarding structural agreements, which provide stability to the Company's employees while allowing the Company to be more competitive and to achieve long term sustainability, Aerovías del Continente Americano SA Avianca and the pilots from the Colombian Association of Civil Aviators, or ACDAC, have successfully reached an agreement for the next four years (and, in respect of certain aspects, the next six years)'.75 In a subsequent bankruptcy court filing, the debtors disclosed that the amended terms of the collective bargaining agreements with the pilots unions include: (1) a salary reduction of 15 per cent applicable to any pilots reactivated during the term of the CBA; (2) an initial suspension and subsequent 2 per cent cap on any salary increases during the CBA term; and (3) financial assistance, including social security payments, medical coverage, legal services and Christmas and vacation bonuses for pilots on short- and long-term unpaid leave during the CBA term.76 The debtors further noted that they expected to enter into amended collective bargaining agreements with their remaining unions in the near future.

Finally, with respect to their fleet, the debtors entered into approximately 120 stipulations with their aircraft and equipment counterparties converting their fixed lease obligations to 'power by the hour' obligations calculated based on actual usage and likely generating significant cost savings for the debtors, and underwent a robust fleet rationalisation process.

As of the time of writing, the Avianca Chapter 11 cases remain pending.


On 26 May 2020 (the Petition Date), LATAM Airlines Group SA (together with its debtor affiliates, LATAM) commenced Chapter 11 cases in the United States Bankruptcy Court for the Southern District of New York. As of the Petition Date, LATAM was the largest airline group in South America, offering passenger and cargo services with one of the largest route networks in the world.77 In 2019, LATAM employed approximately 42,000 people worldwide, operated approximately 1,400 flights per day and transported 74 million passengers and 900,000 tons of cargo.78 In 2019, LATAM generated US$10.1 billion in revenues, with over US$1 billion generated in the United States.79

As of 31 December 2019, LATAM had total liabilities equalling US$17.96 billion and total assets of US$21.09 billion.80 As of the Petition Date, LATAM had a total of US$7.57 million in financial debt obligations, US$457 million of which is contracted by LATAM Airlines Brazil, a non-debtor affiliate.81 Specifically, LATAM's capital structure includes:

  1. US$600 million outstanding under a revolving credit facility;
  2. US$215 million of local unsecured bank loans;
  3. US$1,500 million of unsecured international bonds;
  4. US$491 million of Chilean unsecured bonds;
  5. US$4,168 million of fleet financing; and
  6. US$139 million from a pre-delivery payments facility.82

Unlike Avianca,83 LATAM had been experiencing increasing economic growth leading up to the pandemic. However, due to covid-19, LATAM's passenger airline services, which constituted the majority of LATAM's operating revenue, were reduced by 95 per cent.84

As of the Petition Date, LATAM maintained a fleet consisting of 340 aircraft.85 Of those 340 aircraft, 320 were owned or leased by the debtors in the Chapter 11 cases: 35 were owned, 187 were 'financed' under finance leases, and 98 were leased under operating leases.86 LATAM underwent a similar fleet rationalisation process to Avianca.

With respect to LATAM's labour negotiations, before the pandemic, LATAM regularly employed 42,000 employees, with approximately 17,000 'wage earners' as of 1 April 2020.87 As of the Petition Date, approximately 55 per cent of LATAM's employees were represented by a union or other collective bargaining structure.88 While these unionised workers were represented by Latin American unions, none of the US employees were members of a union.89 In May 2020, LATAM laid off about 1,850 of its employees, and implemented consensual salary reductions of 50 per cent in June 2020 for employees, while guaranteeing double the minimum wage in each applicable country.90 On the Petition Date, the debtors filed a motion to continue paying employee wage obligations, as is common in most major Chapter 11 cases.91 As of the time of writing, no motion has been filed addressing any collective bargaining agreements.

A key dispute in the LATAM Chapter 11 cases related to the debtors' original proposed debtor-in-possession financing facility (the DIP facility). On 28 June 2020, LATAM filed a motion seeking authorisation to obtain Tranche C DIP financing, in an aggregate principal amount of US$900 million, to be provided by certain existing equityholders.92 On 7 July 2020, LATAM filed its second DIP motion seeking an additional US$1.3 billion in Tranche A financing provided by Oaktree Capital Management LP and certain affiliates.93 Subsequently, a number of parties in interest filed objections to the proposed DIP (including Knighthead Capital Management, who had put forth a competing DIP proposal) arguing, among other things, that the equity conversion feature of the Tranche C DIP financing both (1) constituted an impermissible sub rosa plan, and (2) violates the absolute priority rule.94 Specifically, the DIP facility provided the Tranche C lenders with the option to receive payment in cash or convert their debt into equity of the reorganised debtors at a 32 per cent discount to plan value.95 This figure was subsequently amended to a 20 per cent discount to plan value. Moreover, the objecting parties took issue with a covenant under the revised DIP credit agreement mandating that only a company-approved Chapter 11 plan could be approved by the court.96

On 10 September 2020, the court declined to approve the proposed DIP facility, concluding that the equity subscription election thereunder gave rise to improper sub rosa plan treatment of the Tranche C DIP lenders.97 Among other things, the court reasoned that such a feature would provide the debtors a 'leg up' in the confirmation process by approving specific terms of a plan yet to be filed (e.g., the equity distribution to the company's prepetition equityholders).98 The court noted that '[the debtors] are asking the Court to approve a transaction that will fix now, some of the terms of a plan yet to be filed. If approved, the Tranche C DIP Facility locks into place the 20 [per cent] discount to plan value on the stock to be issued to the Tranche C Lenders in satisfaction of the Tranche C DIP loan, if the Debtors elect to distribute stock, in lieu of cash, in satisfaction of that obligation. There is no way of knowing now whether that discount is appropriate. Yet, if the DIP is approved, neither the Debtors' decision to make that election, nor the 20 per cent discount, will be subject to creditor comment or Court review.”99 The court further concluded that such a feature 'short circuits' the Chapter 11 process by establishing plan terms in the DIP facility.100

Notwithstanding the above findings, the court dismissed a number of the objecting party's arguments, noting, among other things, that: (1) the price and terms of the revised DIP credit agreement satisfied the heightened 'entire fairness' standard applicable to transactions involving insiders; (2) the debtors had satisfied their burden under Section 364 of the Bankruptcy Code necessary to approve the financing; and (3) the DIP lenders were entitled to a good faith finding under Section 364(e). Accordingly, on 8 September 2020, the court approved a revised DIP facility that eliminated the equity conversion feature.101

As is the case with Avianca, LATAM has yet to emerge from Chapter 11 as at the time of writing.

iii Aeroméxico

As noted in last year's edition of this review, Grupo Aeroméxico, SAB de CV (together with its debtor affiliates, Aeroméxico), was the third and final major non-US-based airline to commence Chapter 11 cases in the United States Bankruptcy Court for the Southern District of New York in the summer of 2020.

Aeroméxico is Mexico's leading airline in terms of market share, fleet size and network, offering passengers a full-service experience to 84 global destinations, connecting Mexico with both domestic and international destinations under a 'hub-and-spoke' model.102 Based on this model, Aeroméxico provides different price points and a broad network, while maintaining a leading market presence in Mexico's key airports, namely Mexico City, Monterrey, and Guadalajara. Prior to covid-19, Aeroméxico offered 573 daily passenger flights on average, servicing 42 domestic and 20 destinations in the United States and Canada, 15 in Central and South America and the Caribbean, five in Europe and two in Asia. Although Aeroméxico completed a highly-subscribed bond issuance in February 2020, it was not immune to the same factors that precipitated Avianca and LATAM's bankruptcy filings and, on 30 June 2020 (the Petition Date), Aeroméxico and three of its affiliates commenced its Chapter 11 cases.103 As of the Petition Date, the debtors estimated that their consolidated assets were US$5.180 billion while their liabilities were US$4.966 billion.104

Unlike the Avianca and LATAM bankruptcy cases, there have been few litigated disputes in Aeroméxico's Chapter 11 cases and, at the time of writing, all matters relating to post-petition financing, receivables securitisation trusts, fleet and labour have gone forward on a consensual basis.

First, as was the case in LATAM and Avianca, the debtors sought approval of a multi-tranche DIP facility, with an equity conversion feature, early in the case. Under the proposed financing, the DIP lenders would provide a US$200 million senior superpriority secured Tranche 1 facility and a US$800 million junior superpriority secured Tranche 2 facility. Notably, the DIP facilities contained no priming liens, which are common, if not typical, in a Chapter 11 case. Rather, the DIP lenders would receive a senior lien on unencumbered assets and junior lien on previously encumbered assets. Additionally, the Tranche 2 facility was convertible to equity in the reorganised debtors upon satisfaction of certain steps and conditions. The mechanics of this equity conversion were set forth in a schedule to the DIP Credit Agreement, which provided: (1) milestones tied to delivery of valuation materials, election to convert Tranche 2 loans to equity, filing and solicitation of the plan and disclosure statement, and confirmation of the plan; (2) provisions to ensure compliance with Mexican law, including limiting the amount of voting shares received by non-Mexican Tranche 2 lenders to 49 per cent of voting power of the reorganised company, providing for a post-confirmation rights offering; and (3) agreements by the existing shareholders to perform their obligations under the Shareholder Support Agreement (as defined therein).105 On 13 October 2020, the court entered the order approving the DIP facility.

Second, like Avianca and LATAM, Aeroméxico has been engaged in a robust fleet rationalisation process designed to reduce its long-term obligations under its leasing arrangements. As of the Petition Date, Aeroméxico had a fleet of 126 passenger aircraft.106 Some 96 such aircraft were leased under standard operating leases, five were leased pursuant to Japanese operating leases with a call option (JOLCOs) and 25 of these aircraft were either owned or subject to finance leases with non-debtor special purpose vehicles. The debtors entered into stipulations with a number of these counterparties, amended and assumed many leases and entered into new aircraft leases.

Third, the debtors also sought to modify obligations with respect to their workforce. At the time of filing, over two-thirds of the debtors' workforce were members of one of four unions, each of which were under separate collective bargaining agreements (CBAs).107 Over the course of the proceedings, the court granted the company authority to pay out a series of severance payments to unionised workers in accordance with existing CBAs, as well as to non-unionised workers.108 On 6 April 2021, the debtors filed a motion seeking authorisation to enter into new CBAs with various unions. In the motion, the debtors noted that the new CBAs represented the culmination of many months of negotiations between the debtors and the labour unions. The debtors emphasised that the cost savings under the new CBAs were projected to reach US$685 million over the next four years and were necessary to prevent a default under the DIP facility. On 22 April 2001, the court approved the new CBAs.109 The debtors subsequently made additional severance payments pursuant to the CBAs.110

As of the date of this publication, the Aeroméxico Chapter 11 cases remain pending.

iv Garrett Motion

Headquartered in Switzerland, Garrett Motion Inc (Garrett) is a leading provider of turbochargers and other automobile components.111 Operating in 13 countries on five different continents, Garrett is a large supplier to major auto manufacturers and racing teams.112 Prior to its Chapter 11 cases, Garrett was embroiled in litigation concerning its 2018 spin off from Honeywell International Inc (Honeywell).113 However, Garrett sued Honeywell to invalidate certain spin-out obligations to Honeywell, including up to US$5.2 billion in obligations under an indemnity agreement for Honeywell legacy asbestos exposure, as well as amounts relating to certain tax liabilities.114 On 20 September 2020, the Garrett and certain affiliates (the Debtors) commenced Chapter 11 cases in the United States Bankruptcy Court for the Southern District of New York.115 It was alleged by Honeywell that the Debtors had commenced the cases to avoid their financial commitments to Honeywell.116

On the Petition Date, the Debtors also filed a motion to sell substantially all of their assets, under Section 363 of the Bankruptcy Code, to KPS Capital Partners (KPS), for a purchase price of US$2.1 billion plus assumption of most liabilities.117 The Debtors also entered the case with a restructuring support agreement (RSA) with holders of approximately 61 per cent of senior secured term loan debt.118 The plan term sheet attached to the RSA contemplated that the Debtors would use the proceeds of the asset sale to pay lenders under their prepetition credit agreement in full.119 Unsecured noteholders would receive a 90 per cent recovery.120 Any claims not assumed by KPS (including remaining noteholder claims and Honeywell asbestos indemnification claims) would share the remaining sale proceeds and receive interests in a liquidating trust to pursue certain causes of action.121

The Debtors prepetition capital structure included the following:

  1. US$1.447 billion in secured bank debt;
  2. US$414 million in senior unsecured bond debt;
  3. US$1.080 billion in Honeywell indemnity obligations; and
  4. US$264 million in Honeywell tax liability.122

After a number of significant developments in the Chapter 11 cases, including, among other things (1) approval of DIP financing, (2) an increase in the KPS stalking horse bid price, (3) multiple alternate plan proposals put forth by various constituents, (4) approval of the bid procedures motion, including bid protections for KPS, and (5) KPS being named the successful bidder, reflecting a US$2.9 billion adjusted enterprise value, the Debtors chose to pivot to a plan proposed by Centerbridge Partners, LP (Centerbridge), Oaktree Capital Management, LP (Oaktree) and Honeywell.123 This came just three days after the Debtors had filed a plan premised on the KPS acquisition.124 Under the Centerbridge and Oaktree plan, the plan proponents would purchase US$1.05 billion in convertible Series A preferred stock. Existing equity would receive the option either to retain their shares and participate in a rights offering for US$200 million in additional Series A preferred stock (backstopped by the plan sponsors and additional investors) or to receive cash consideration equal to US$6.25 per share.125 The plan further proposed US$1.21 billion in payments to Honeywell over time. Under the Centerbridge and Oaktree plan, all creditors would be paid in full except for Honeywell.126

On 9 March 2021, the debtors filed another amended plan that resolved certain disputes with the official committee of equity securityholders.127 Among other things, the amended plan increased the preferred stock issuance from US$1.25 billion (which reflected an increase to the initial US$1.05 billion amount) to US$1.3 billion, and reduced Centerbridge's and Oaktree's subscription rights to US$668.8 million.128 The remaining US$632 million would be offered pro rata to all existing shareholders, subject to an 8.4 per cent backstop premium for the 'Additional Investors' in an ad hoc group of equityholders.129 Additional subscription rights in the convertible shares were offered to equity holders outside of the ad hoc group.130 Moreover, existing shareholders that elected to retain their stock (rather than accept cash consideration) would receive an increased percentage of equity in the reorganised debtors.131

On 23 April 2021, the court confirmed the amended plan on a fully consensual basis.132

Ancillary insolvency proceedings

In this year's edition of the review, we will describe two significant court decisions involving novel issues relating to the application of foreign law in a United States Chapter 15 proceeding – Fairfield Sentry and Norske Skogindustrier.

i Fairfield Sentry

Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (collectively, the Debtors) were three feeder funds that invested in Bernard L Madoff Securities LLC. Madoff was later determined to have run the largest Ponzi scheme in history.133 After the scheme was uncovered, certain shareholders of the Debtors commenced insolvency proceeding against the Debtors in the Commercial Division of the Eastern Caribbean High Court of Justice, British Virgin Islands (BVI), and liquidators appointed by the BVI court commenced Chapter 15 proceedings in the United States Bankruptcy Court for the Southern District of New York seeking recognition of the BVI proceedings.134 After the court entered the recognition order, the liquidators subsequently commenced various avoidance actions in the US, but under BVI law, alleging that certain defendants 'knew when they redeemed their interests in the Funds that the redemption prices were inflated because they were based on [the Debtors'] fictitious BLMIS account statements listing securities that did not exist'.135 Specifically, the complaint alleged that Citco Group Limited and its affiliates, who were responsible for calculating net asset value per share and making distributions to investors, 'knew or willfully blinded itself to the fact that BLMIS investments were worthless'.136 Moreover, the complaint alleged that defendants 'knew or should have known that the redemption payments were inflated due to Madoff''s fraud' and, accordingly, the liquidators sought to recover redemption payments totalling almost US$58.5 million through various BVI avoidance provisions similar to the avoidance provisions set forth in the Bankruptcy Code.137

A threshold issue for the court to consider was whether the 'safe harbor' defence, set forth in Section 546(e) of the Bankruptcy Code, protected the transfers. Section 546(e) is commonly invoked in the context of Chapter 11 as a way of shielding certain payments made by or to financial institutions from avoidance. However, while Section 546(e) acts as a broad grant of protection against virtually every avoidance action set forth in the Bankruptcy Code, it does not protect intentional fraudulent transfer claims commenced under Section 548(a)(1)(A) thereof.

An interesting question in the cross-border insolvency context arises when a foreign representative or liquidator asserts a claim under foreign law that resembles an actual fraudulent transfer claim under Section 548(a)(1)(A). The issue is whether this carve-out reflects a Congressional intent to protect transfers rooted in intentional fraud such that analogous claims under foreign law are not protected by the Section 546(e) safe harbour.

Not surprisingly, the liquidator in Fairfield Sentry argued that the carve-out should apply to its BVI claims. However, the court rejected this contention noting, among other things, Section 546(e) expressly carves-out actual fraudulent transfer claims commenced under Section 548(a)(1)(A) of the Bankruptcy Code (and not under state or foreign law).138 Moreover, the court noted that 'neither avoidance Claim [asserted by the liquidators] requires proof of an intent to “hinder, delay or defraud,” the critical element of an intentional fraud claim'.139 Thus, the defendants were shielded by the safe harbour.

ii Norske Skogindustrier

Shortly after the court issued its opinion in Fairfield Sentry, for a different bankruptcy judge presiding in the Southern District of New York was confronted with substantially the same issue relating to the safe harbour carve-out's applicability to foreign law causes of action. The court disagreed with the Fairfield Sentry court's conclusion that foreign law claims resembling intentional fraudulent transfer claims were not carved out of Section 546(e), creating a tension within the Southern District of New York.

Norske Skogindustrier ASA was the parent company of a number of paper-producing subsidiaries (together, the Debtors) that comprised one of the largest manufacturers of newsprint and magazine paper in the world.140 Like many other paper producers, the Debtors began to encounter financial distress, in the Debtors' case as early as 2012.141 In response, the Debtors underwent a series of restructuring transactions, which were allegedly conducted for the benefit of its two then largest shareholders, Cyrus Capital Partners, LP (together with its affiliates invested in the Debtors' capital structure (Cyrus)) and GSO Capital Partners LP (together with its affiliates invested in the Debtors' capital structure (GSO)). Prior to the Debtors' first restructuring transaction, their capital structure consisted of various unsecured notes, with staggered maturity dates (including unsecured notes due 2016 and 2017, as discussed below) and certain minor factoring facilities issued by the parent entity.142 The Debtors commenced an exchange offer, under which unsecured noteholders would receive a combination of new unsecured notes that would be structurally senior to the existing unsecured notes (the Prior Exchange Notes) and cash.143 The Debtors also caused a newly created subsidiary to issue senior secured notes in order to finance the cash component of the first exchange offer.144 Following the first restructuring, both GSO and Cyrus were heavily invested at most levels of the capital structure.145 GSO and Cyrus were also alleged to have written a number of credit default swaps relating to the Debtors debt instruments.146

Following the first exchange offer, the company, GSO, and Cyrus implemented a second restructuring in 2016, under which the 2017 unsecured notes could be exchanged for: (1) new unsecured notes due in 2026; (2) perpetual notes, maturing in 2115; and (3) a 17 per cent value par write off.147 However, with respect to the 2016 unsecured notes (which were largely held by GSO and Cyrus, these notes would 'be refinanced by borrowing money from the Cyrus and GSO Defendants by issuing various secured debt instruments, senior to the SSNs and [Prior Exchange Notes]'.148 On the same day that the board announced the decision to issue a new facility to repay the 2016 unsecured notes, Cyrus sold its position in the 2016 secured notes to GSO at 68 per cent of par value plus accrued interest.149 As of 15 June 2016, Norske ASA 'had paid off or purchased approximately €108 million in 2016 senior unsecured notes'.150

Shortly after the foregoing transactions, the Debtors commenced insolvency proceedings in Norway.151 On 20 December 2017, four of the parent's subsidiaries filed voluntary petitions for liquidation.152 As of the petition date, the Debtors 'listed approximately €924 million in liabilities and €287 million in assets'.153

On 16 November 2018, the Debtors commenced Chapter 15 proceedings in the United States Bankruptcy Court for the Southern District of New York, and the recognition order was entered shortly thereafter.154 On the same day, the foreign representative commenced an adversary proceeding against GSO, asserting the following counts relating to the exchange transactions: (1) avoidance action under the Norwegian Recovery Act of 8 June 1984 No. 59 (the Recovery Act) Section 5-9 against the GSO defendants and John Does 1-100; (2) avoidance action under Recovery Act Section 5-5 against the GSO defendants and John Does 1-100; (3) avoidance action under Section 5-9 against the Cyrus defendants; (4) a claim for damages under the Norwegian Public Limited Liability Companies Act of 13 June 1997 Section 17-1 and similar 'Norwegian non-statutory law' against GSO and Cyrus; and (5) unjust enrichment against GSO and Cyrus.155 The court noted that the motions to dismiss the complaint raised issues of choice of law, timeliness, sufficiency of the pleadings, and the applicability of the Section 546(e) safe harbour and Section 561(d).156

As was the case in Fairfield Sentry, the court was confronted with the cross-border issue of the Section 546(e) safe harbour's applicability to actions commenced under foreign law, as well as the applicability of the intentional fraudulent transfer carve-out contained therein.

After first concluding that the 'defendants have not met their burden to show that the transfers are protected from avoidance by the safe harbor', the court next turned to the issue of whether, in the event that the safe harbour did in fact apply, foreign law claims analogous to Section 548(a)(1)(A) claims would be exempt from it.157 Disagreeing with the Fairfield Sentry holding, the court wrote that: '[t]he inquiry whether the foreign statute is sufficiently analogous to section 548(a)(1)(A) must therefore be a flexible one, taking into account not only the language of the statute but also the broader context of the foreign legal regime, rather than a rigid comparison of the language in the foreign statute and our own'.158 The court further disagreed that the foreign law claim to be carved-out from the Section 546(e) safe harbour must require, as an element, actual intent to hinder, delay or defraud, noting that 'courts [have] permitted unjust enrichment claims that sought recovery of transfers to go forward so long as the unjust enrichment claims alleged actual intent of the transferor, even though actual intent was not an element of the unjust enrichment claims'.159 Accordingly, the court held that to the extent that the foreign law claims adequately alleged actual intent, these claims were carved out from the scope of the Section 546(e) safe harbour.160


The sections below highlight recent trends relating to the covid-19 pandemic and offer some detail on recent decisions and other developments that may be relevant in US bankruptcy practice in the coming years.

i Covid-19 pandemic

As noted above, the most significant driver of 2020 US bankruptcy activity (and arguably the largest influence on 2021 bankruptcy activity) was the covid-19 pandemic. One metric evidencing the magnitude of the crisis is the dramatic increase in business Chapter 11 cases: 1,318 in the third quarter of 2019; 1,498 in the fourth quarter of 2019; 1,854 in the first quarter of 2020; 2,042 in the second quarter of 2020; and 2,110 in the third quarter of 2020. As mandatory lockdowns and individuals' fears of going out in public became widespread in 2020, countless sectors experienced substantial declines in revenue stemming from the covid-19 pandemic.

The airline industry was among the hardest hit by the pandemic. While the industry has historically been no stranger to the US bankruptcy court, low fuel prices in recent years largely meant that global and domestic carriers were able to generate sufficient earnings to service their debt. As discussed above, however, the grounding of flights and diminished demand for travel owing to the pandemic had immediate and extremely adverse effects on the industry. As noted above, shortly after Avianca filed for Chapter 11, LATAM Airlines Group SA commenced its own Chapter 11 cases on 26 May 2020 in the United States Bankruptcy Court for the Southern District of New York.161 Just one month later, Grupo Aeromèxico SAB de CV, the largest airline in Mexico, filed for Chapter 11.162

However, domestic airlines were able to hold on until conditions improved. As noted above, capital markets activity increased significantly towards the end of 2020 and in early 2021. In the context of the airline industry, major US airlines found that they could raise substantial amounts of debt finance by using their mileage programmes as credit support. For example, Spirit Airlines, Inc issued US$800 million in secured notes in the fall of 2020 that were secured by, among other things, a first priority lien on the core assets of Spirit's loyalty programmes (comprising cash proceeds from its Free Spirit co-branded credit card programmes, its US$9 Fare Club programme membership fees and intellectual property utilised in connection with the loyalty programmes) and Spirit's brand intellectual property.163 Both American Airlines and United Airlines would complete similar bond offerings, thereby providing them with liquidity.164

Robust capital and debt markets and access to government financial support improved the outlook for business across the US economy beginning in the second half of 2020. From their high of 2,110 in the three months ending 30 September 2020, Chapter 11 cases declined to 1,755 in the following quarter,165 and in the three-month period from 1 January 2021 to 31 March 2021, only 1,444 business Chapter 11 cases were commenced.166 In the three months ending 30 June 2021, this figure plummeted even further to 1,065 cases.167

While the availability of the covid-19 vaccines is likely to have contributed to this decline to a certain extent, the trends were improving months before the first shots were widely available. Perhaps more importantly, the dramatic increase in capital markets and lending activity outlined above enabled many companies to address liquidity issues by raising new capital (or refinancing existing bank debt or bond debt), thereby delaying or preventing Chapter 11 filings, at least in the near term. It remains to be seen whether such financing will serve as a long-term solution to these issues, together with government support and low interest rates. And, of course, there remains substantial uncertainty regarding the course of the pandemic, especially in light of new variants of the virus.

ii Gifting

A recent trend in bankruptcy settlements over the past 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 the 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 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 Bankruptcy Code's absolute priority rule 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, a creditor with intermediate priority may object if junior creditors are receiving distributions before senior claims are paid in full, in violation of the absolute priority rule under Section 1129(b) of the Bankruptcy Code.

In 2011, the United States Court of Appeals for 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.168 The court invalidated the plan, holding that the senior creditors had no right to gift property of the debtor's 'estate' 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 United States Court of Appeals for the Third Circuit held that the DBSD holding was limited to gifting estate property. Senior creditors, however, remained free to gift non-estate property.169

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 have been 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 Corp170 indicates, however, that priority deviations implemented through non-consensual structured dismissals may not be allowed. Commentators and courts are still grappling with the ultimate scope of Jevic;171 while certain courts have interpreted Jevic broadly to deny priority-skipping distributions that are not tied to 'a significant Code-related objective';172 other courts have read Jevic narrowly and approved priority-skipping distributions in connection with a Chapter 11 plan173 or a settlement.174 Courts have also read Jevic narrowly to approve structured dismissals that did not involve priority-skipping distributions.175

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 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 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 where the market settles on this issue.

iv Pre-packaged bankruptcies

In a pre-packaged bankruptcy, a debtor negotiates a plan with its key creditors prior to the commencement of a Chapter 11 case.176 Solicitation of votes on the plan commences before the actual bankruptcy filing.177 While the Bankruptcy Code expressly contemplates this type of proceeding, there has been a recent trend towards increasingly fast-paced cases in which the debtors spend minimal time in bankruptcy. For example, the 2017 cases of Roust Corporation178 and Global A&T Electronics Ltd179 represented two of the shortest pre-packaged Chapter 11 cases since the enactment of the Bankruptcy Code. In fact, both of the foregoing cases involved Chapter 11 plans that were confirmed in less than one week.

2019 saw debtors enter and emerge from Chapter 11 faster than ever before. FullBeauty Brands filed for Chapter 11 on 3 February 2019. Its plan was confirmed on the very next day, and the company emerged from bankruptcy on 7 February 2019.180 Two months later, Sungard Availability Services Capital, Inc filed its pre-packaged Chapter 11 case. Less than one day after the filing, the court confirmed the debtors' pre-packaged plan of reorganisation. The debtors emerged from bankruptcy less than 40 hours after filing.181

Although each of the four cases discussed above took place in front of Judge Robert Drain of the United States Bankruptcy Court for the Southern District of New York, this trend is not limited to this venue. On 4 February 2019, Arsenal Energy Holdings LLC and its debtor affiliates filed for Chapter 11 in the United States Bankruptcy Court for the District of Delaware.182 One week later, the court confirmed Arsenal's pre-packaged plan.183

In 2020, the United States Bankruptcy Court for the Southern District of Texas began to see similar cases. For example, the case of Mood Media saw the debtors emerge from Chapter 11 in less than 24 hours.184

Proponents of these expedited procedures argue that swifter pre-packaged bankruptcies minimise disruptions to a company and its trade creditors, critical vendors, and employees.185 However, critics assert that such cases short-circuit the bankruptcy process and undermine the notice requirements of the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure.186 In 2021, the United States Bankruptcy Court for the Southern District of Texas arguably alleviated some of these concerns in Belk Inc. There, the court confirmed the fastest Chapter 11 case, from filing to emergence, in history.187 However, in order to address certain objections raised by the United States Trustee, the court proposed a 'due process order', under which, among other things, a series of future hearings were established in order to (1) approve the form of a new release opt-out notice extending the opt-out deadline, which would receive input from the United States Trustee, (2) hear any objections to the assumption or rejection of any executory contracts, and (3) hear any objections generally relating to due process concerns.188

As debtors continue to seek to reduce the cost of effectuating balance sheet restructurings, the trend toward faster pre-packaged bankruptcies is likely to continue in the near term, while more traditional 'free call' Chapter 11 cases continue to address more profound operating problems, including those arising from the covid-19 pandemic.


1 Donald S Bernstein and Timothy Graulich are partners and Christopher S Robertson and Thomas S Green are associates at Davis Polk & Wardwell LLP.

2 US Constitution, Article I, § 8.

3 11 U.S.C. §§ 101–1532 (2012).

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

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

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

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

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

9 11 U.S.C. § 555.

10 11 U.S.C. § 556.

11 id.

12 11 U.S.C. § 559.

13 11 U.S.C. § 560

14 11 U.S.C. § 561.

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

16 A plan of reorganisation is approved by a class when it is accepted by a majority in number of the class members who vote and the class members who accepted the plan hold at least two-thirds of the total value of the claims of voting creditors 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

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

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 Bureau of Economic Analysis, U.S. Department of Commerce, Gross Domestic Product (Third Estimate), Corporate Profits (Revised), and GDP by Industry, Third Quarter 2020, at 1 (Dec. 22, 2020)

46 Bureau of Economic Analysis, U.S. Department of Commerce, Gross Domestic Product (Third Estimate), Corporate Profits (Revised Estimate), and GDP by Industry, First Quarter 2021, at 1 (June 24, 2021)

47 Bureau of Labor Statistics, United States Department of Labor, Labor Force Statistics from the Current Population Survey, available at

(last visited June 24, 2021).

48 id.

49 Matthew Toole, Perspective: Deal Insights, Global capital markets answer 2020's distress call, Refinitiv (Jan. 21, 2021),

50 Federal Reserve Board, New Securities Issues, US Corporations (Table 1.46) (April 2021) available at

51 id.

52 United States Department of Treasury, Daily Treasury Yield Curve Rates, 2021, available at

53 United States Department of Treasury, Daily Treasury Yield Curve Rates, 2020 available at

54 Federal Reserve Board, New Securities Issues, supra n. 50.

55 Refinitiv, Global Equity Capital Markets Review: Full Year 2020: Managing Underwriters. at 8,

56 Federal Reserve Board, New Securities Issues, supra n. 50.

57 See, e.g., Caitlin McCabe, It Isn't Just AMC. Retail Traders Increase Pull on the Stock Market, Wall St. J. (June 18, 2021 5:30 am ET), available at

58 Moody's – US Speculative-Grade Default Rate Plummets in Q1 2021 As Economy Picks Up, (April 30, 2021), available at

59 Moody's – Pace of US Corporate Defaults Eased in Q4 2020; Meanwhile Oil and Gas, PE-Backed Issuers, Dominate Defaulters, (January 29, 2021), available at|of-US-corporate-defaults-eased-in-Q4-2020--PBC_1263415.

60 Moody's – US Speculative-Grade Default Rate Increased in Q4 2019; Set to Moderate in 2020; Credit Strains Building Modestly, (January 27, 2020), available at

61 Moody's – US Speculative-Grade Default Rate Plummets in Q1 2021 As Economy Picks Up, (April 30, 2021), available at

62 US Leveraged Loan Default Rate Ends 2020 at 3.83 per cent; Peak Seen At Less Than 6 per cent, (January 5, 2021), available at

63 Leveraged Loan Defaults Are At Highest Level In Two Years, (November 22, 2019), available at

64 The Year in Bankruptcy: 2020 (February 2020), available at

65 id.

66 See infra note 303.

67 id.

68 Capitalised terms used in this section shall have the meanings ascribed to such terms in last year's discussion of Avianca.

69 Avianca Obtains Approval of Settlement With USAV Parties, Avianca Peru; Debtors' Fleet Restructuring Bears 'First Fruits;' Ch. 11 Emergence Expected in 'Second Half' of 2021,

70 UPDATE 1: USAV Settlement Reduces Monthly Amortization Payments, Interest Rate Under Restructured Loan Facility,

71 Avianca Announces Colombia's $370M DIP Financing Commitment; DIP Approval Expected During September,

72 Colombian Court Issues Injunction Blocking Government's $370M DIP Financing Commitment for Avianca,

73 ECF No. 1394.

74 ECF No. 1919.

76 ECF No. 1534.

77 Voluntary Chapter 11 Petition [ECF No. 1]; First Day Declaration by Ramiro Balza [ECF No. 3].

78 First Day Declaration by Ramiro Balza [ECF No. 3].

79 First Day Declaration by Ramiro Balza [ECF No. 3].

80 Voluntary Chapter 11 Petition [ECF No. 1].

81 First Day Declaration by Ramiro Balza [ECF No. 3].

82 First Day Declaration by Ramiro Balza [ECF No. 3].

83 See CASE SUMMARY: Colombian Airline Avianca Files Free-Fall Bankruptcy Citing Covid-19 Impacts; Exploring Liquidity Opportunities to Fund Plan, Emergence; Seeks to Reject Aircraft Leases Due to 'Significant Surplus'(11 May 2020), available at

84 First Day Declaration by Ramiro Balza [ECF No. 3].

85 First Day Declaration by Ramiro Balza [ECF No. 3].

86 First Day Declaration by Ramiro Balza [ECF No. 3].

87 First Day Declaration by Ramiro Balza [ECF No. 3].

88 CASE SUMMARY: LATAM Files Chapter 11 With $900M Commitments From Shareholders as Part of Larger $2.2B DIP Facility; Debtors Reaching Out to Prospective Investors Regarding Financing;

89 CASE SUMMARY: LATAM Files Chapter 11 With $900M Commitments From Shareholders as Part of Larger $2.2B DIP Facility; Debtors Reaching Out to Prospective Investors Regarding Financing;

90 CASE SUMMARY: LATAM Files Chapter 11 With $900M Commitments From Shareholders as Part of Larger $2.2B DIP Facility; Debtors Reaching Out to Prospective Investors Regarding Financing;

91 Motion to Authorize / Debtors' Motion for Entry of Interim and Final Orders (I) Authorizing the Debtors to (A) Pay Certain Employee Wages . . . [ECF No. 13].

92 ECF No. 397.

93 ECF No. 485.

94 UCC, Knighthead, Ad Hoc Group Object to LATAM Airlines DIP, Asserting Improper Terms, 'Insider' Process; Knighthead, Ad Hoc Group Disclose Alternative Financing Discussions,

95 UCC, Knighthead, Ad Hoc Group Object to LATAM Airlines DIP, Asserting Improper Terms, 'Insider' Process; Knighthead, Ad Hoc Group Disclose Alternative Financing Discussions,

. This figure was subsequently revised to 20 per cent.

96 UCC, Knighthead, Ad Hoc Group Object to LATAM Airlines DIP, Asserting Improper Terms, 'Insider' Process; Knighthead, Ad Hoc Group Disclose Alternative Financing Discussions,

97 Judge Garrity Will Not Approve LATAM Airlines' DIP Facility, Concludes Equity Subscription Election Gives Rise to Improper Sub Rosa Treatment of Tranche C Lenders, Debtors' Equity Holders;

98 Judge Garrity Will Not Approve LATAM Airlines' DIP Facility, Concludes Equity Subscription Election Gives Rise to Improper Sub Rosa Treatment of Tranche C Lenders, Debtors' Equity Holders;

99 ECF No. 1056.

100 ECF No. 1056.

101 Judge Garrity Approves Revised LATAM Airlines DIP Loan; Debtors' Counsel Expresses Hope Regarding 'New Dynamic';

102 Declaration of Ricardo Javier Sánchez Baker in Support of the Debtors' Chapter 11 Petitions and First Day Pleadings at 76, schedule 4 [ECF 19] (hereinafter First Day Declaration).

103 CASE SUMMARY: Aeroméxico Outlines Strategy to “Streamline” Operations, Take Advantage of Market Conditions to Renegotiate Key Contractual Relationships, Seek DIP Financing, Reorg (July 1, 2020 12:09 PM),éxico_S_A_B__De_C_V__-_2020-07-01_12_09_11__CASE_SUMMARY__Aerom__xico_Outlines_Strategy_to____Streamline____Operations__Take_Advantage_of_-56527-0.pdf.

104 First Day Declaration. Note that these figures include certain non-debtor affiliates.

105 ECF No. 527.

106 Order Authorizing First Omnibus Motion of the Debtors for Entry of an Order (I) Authorizing Debtors to Reject Certain Aircraft Leases, Nunc Pro Tunc and (II) Approving Lease Rejection-Return Procedures [ECM 177]; Order Authorizing Debtors to Reject Certain Engine Leases, Nunc Pro Tunc [ECF 210].

107 Declaration of Ricardo Javier Sánchez Baker in Support of the Debtors' Chapter 11 Petitions and First Day Pleadings at 12 (¶ 31) [ECF 19].

108 See Order (I) Authorizing the Debtors to Make Payments to Certain Non-Insider, Non-Unionized Employees and (II) Granting Related Relief [ECF 976]; Order (I) Authorizing the Debtors to Make Payments to Certain Non-Insider, Unionized Employees and (II) Granting Related Relief [ECF 646], revised, [ECF 699] (authorizing US$12.83 million non-unionized workers), Order (I) Authorizing the Debtors to Make Payments to Certain Non-Insider, Unionized Employees and (II) Granting Related Relief [ECF 646] (authorising US$12.4 million for members of the Independencia and STIA unions); Order (I) Authorizing the Debtors to Make Payments to Certain Non-Insider, Flight Attendants and (II) Granting Related Relief [ECF 583] (authorising US$6.2 million for flight attendants).

109 ECF No. 1101.

110 See Order (I) Authorizing the Debtors to Make Payments to Certain Retiring Pilots and (II) Granting Related Relief [ECF 1243] ($19.1 million to pilots).

111 ECF No. 15

112 id.

113 id.

114 id.

115 id.

116 CASE SUMMARY: Garrett Motion Enters Bankruptcy to Sell Assets to KPS Free of Honeywell Indemnification Agreements; RSA Contemplates Paying Secured Lenders in Full, Noteholders 90%,

117 id.

118 id.

119 id.

120 id.

121 id.

122 id.

123 Garrett Debtors Pivot to Amended Oaktree/Centerbridge Plan; New PSA Includes Cash-Out Option for Existing Shareholders at $6.25 Per Share, $1.2B Honeywell Settlement,

124 id.

125 id.

126 id.

128 id.

129 id.

130 id.

131 id.

132 Judge Wiles Confirms Uncontested Garrett Motion Plan,

133 Fairfield Sentry Ltd. v. Theodoor GGC Amsterdam (In re Fairfield Sentry Ltd.), 2020 Bankr. LEXIS 3489, *2 (Bankr. S.D.N.Y. Dec. 14, 2020).

134 id. at *4.

135 id. at * 2.

136 id. at *6.

137 id. at *7.

138 id. at *26.

139 id. at *25.

140 Bankr. Estate of Norske Skogindustrier ASA v. Cyrus Capital Partners, L.P (In re Bankr. Estate of Norske Skogindustrier ASA), 2021 Bankr. LEXIS 1137 (Bankr. S.D.N.Y. April 29, 2021).

141 id. at *11.

142 id.

143 id. at *11-12.

144 id. at *12.

145 id. at *13.

146 id. at *14.

147 id. at *18-19.

148 id.

149 id. at *20.

150 id. at *21.

151 id. at *8.

152 id. at *9.

153 id.

154 id.

155 id. at *5-6.

156 id.

157 id. at *90.

158 id. at *95-96.

159 id.

160 id.

161 In re LATAM Airlines Group S.A., Case No. 20-11254 (JLG) (Bankr. S.D.N.Y. 26 May 2020).

162 In re Grupo Aeroméxico S.A.B. de C.V., Case No. 20-11563 (SCC) (Bankr. S.D.N.Y. 30 June 2020).

165 Table F-2 Quarterly (20 Aug 2021), available at

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

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

170 137 S. Ct. 973, 986 (2017).

171 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.

172 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).

173 In re Nuverra Environmental Solutions, No. 17-10949 (Bankr. D. Del. 24 July 2017).

174 In re Short Bark Industries Inc., No. 17-11502 (Bankr. D. Del. 11 Sept. 2017).

175 In re Great Atlantic & Pacific Tea Co., Case No. 15-23007 (RDD) (Bankr. S.D.N.Y. May 14, 2021) [ECF No. 4810]; In re KG Winddown, LLC, Case No. 20-11723 (MG) [ECF No. 494].

176 United States Courts, US Bankruptcy Courts – Chapter 11 - Bankruptcy Basics, available at

177 id.

178 'UPDATE: Judge Drain Confirms Prepackaged Roust Plan, Grants First Day Relief at Joint Hearing,' Reorg Research (9 January 2017), available at

179 'Global A&T Prepack Chapter 11 Plan Approved Including Modified Release, Exculpation Provisions; Section 1125(e)-Related Exculpation Not Limited to Fiduciaries', Reorg Research (21 December 2017), available at

180 'FullBeauty Prepackaged Plan Goes Effective', Reorg Research (7 February 2019), available at

181 'Sungard AS Emerges From High-Speed Chapter 11 Less Than 40 Hours After Filing', Reorg Research (3 May 2019), available at

182 Case No. 19-10226 (Bankr. D. Del.; filed 4 Feb. 2019).

183 Order (I) Approving (A) The Adequacy of the Disclosure Statement and (B) The Prepetition Solicitation Procedures and (II) Confirming the Pre-Packaged Plan of Reorganization of Arsenal Energy Holdings LLC, Case No. 19-10226 (BLS), ECF No. 61 (Bankr. D. Del. 13 Feb. 2019).

184 In re Mood Media Corporation, Case No. 20-33768 (MI) (Bankr. S.D. Tex. 2020).

185 Katherine Doherty, 'Fullbeauty Breaks Record for Fastest U.S. Bankruptcy', Bloomberg (4 February 2019), available at (“In this situation, every day in court is another day of costs without any corresponding benefit”) (quoting J. Henes).

186 Objection of the United States Trustee to Confirmation of the Plan and Related Relief, Case No. 19-22185 (RDD), ECF No. 34 (Bankr. S.D.N.Y. 4 Feb. 2019).

187 Belk Prepackaged Plan Confirmed at Record-Setting Pace; Judge Isgur Crafts 'Due Process Order' to Preserve Parties' Rights,

188 id.

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