Gibbons Law Alert

Gibbons Law Alert

Category: Bankruptcy

Delaware Bankruptcy Court Recognizes Crédito Real’s Prepacked Plan, Including Nonconsensual Third-Party Releases Allowed Under Mexican Law

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Posted in Bankruptcy

On March 19, 2025

In a case of first impression since the U.S. Supreme Court rendered its decision in Purdue prohibiting nonconsensual third-party releases, the U.S. Bankruptcy Court for the District of Delaware granted recognition of Crédito Real’s prepacked plan, which contains nonconsensual third-party releases approved by a Mexican court. In overruling the objection of the U.S. International Development Finance Corp. (DFC), which argued that the Mexican plan would be contrary to U.S. public policy and the court lacked authority to recognize the plan in light of Purdue, Judge Thomas M. Horan found that “Purdue only goes so far,” its holding is limited to Chapter 11, and it “does not create an impediment” to recognition. Emphasizing that “comity is key,” the court found that Crédito Real’s “plan does not implicate the public policy exception.” It will be interesting to observe what broader or long-term implications, if any, the court’s decision will have. Will debtors attempt to utilize Chapter 15 as a vehicle to circumvent Purdue to gain approval in the U.S. of nonconsensual third-party releases allowed under the laws of foreign jurisdictions, or is the court’s ruling limited to the facts of this case? The answer to this question is unclear at the moment. Following his ruling, Judge Horan acknowledged that this is an “issue of significance” and indicated...

Non-Settling Insurers Now Have a Seat at the Bankruptcy Table

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Posted in Bankruptcy / Insurance

On June 20, 2024

Justice Sonia Sotomayor delivered the Supreme Court’s unanimous opinion1 in Truck Insurance Exchange v. Kaiser Gypsum Company, Inc., et al. (Case No. 22-1079) (“Kaiser Gypsum”). Reversing the opinion of the United States Court of Appeals for the Fourth Circuit in In re Kaiser Gypsum Co., Inc., 60 F.4th 73 (4th Cir. 2023), the Court held that, pursuant to section 1109(b) of the Bankruptcy Code, “[a]n insurer with financial responsibility for a bankruptcy claim is sufficiently concerned with, or affected by, the proceedings to be a ‘party in interest’ that can raise objections to a reorganization plan.” In doing so, the Court rejected, as “conceptually wrong” and making “little practical sense,” the “insurance neutrality” doctrine that denies insurers the status of parties in interest in confirmation-related matters if the proposed plan neither increases the insurer’s pre-petition obligations nor impairs its rights under the insurance policies it has issued to the debtors. Kaiser Gypsum is an asbestos mass tort Chapter 11 case. A plan of reorganization (“KG Plan”) was confirmed on September 12, 2021. The KG plan provided, inter alia, for uninsured claims to be administered by an asbestos claims trust (“KG Asbestos Trust”), while insured claims were to be resolved through the tort system and paid (less a small deductible) by the debtors’ primary liability insurer,...

Case Law Alert: Third Circuit Finds No Fraudulent Transfer Liability in Connection With Revocation of Pennsylvania Gaming License

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Posted in Bankruptcy

On July 6, 2021

In a June 29, 2021 decision concerning an alleged $50 million fraudulent transfer to the Commonwealth of Pennsylvania, the United States Court of Appeals for the Third Circuit affirmed the dismissal of an action by the liquidating trustee of Philadelphia Entertainment and Development Partners (d/b/a Foxwoods Casino Philadelphia) (the “Debtor”) under Bankruptcy Code Sections 544(b), 548, 550, and 551 to recover the value of a gaming license that had been revoked by the Commonwealth. The Third Circuit determined that, because the license was not a property right under Pennsylvania state law, sovereign immunity barred the trustee’s action against the Commonwealth. The decision turned on the distinction between transferable ownership rights in property versus mere “privileges.” Although the Third Circuit’s opinion in this matter is non-precedential, it nevertheless underscores the importance that state law plays in determining “property of the estate,” and the resulting consequences for debtors and their creditors. By way of example, we would expect to see the same result under New York law with respect to liquor licenses, which – unlike in New Jersey and certain other states – are non-transferable licenses and thus not estate property under Bankruptcy Code Section 541 and state law.

Breaking Bankruptcy News: Subchapter V Debt Limit Extension

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Posted in Bankruptcy / Restructuring

On March 2, 2021

On February 25, 2021, Sen. Richard Durbin (D-IL) and Sen. Charles Grassley (R-IA), the Chair and Ranking Member of the U.S. Senate Judiciary Committee, respectively, announced the introduction of a bipartisan bill that will provide continued relief to businesses impacted by the ongoing COVID-19 pandemic. The bill, referred to as the COVID-19 Bankruptcy Relief Extension Act, would extend for an additional year—to March 27, 2022—certain bankruptcy-related provisions originally enacted into law in March 2020 as part of the Coronavirus Aid, Relief, and Economic Stabilization Act (“CARES Act”). Under the CARES Act passed on March 27, 2020, Congress increased to $7.5 million the debt limits for debtors seeking relief under the recently-enacted Subchapter V of chapter 11 of the Bankruptcy Code. 11 U.S.C. §§ 1181-1195 (Subchapter V, enacted in 2019 through the Small Business Reorganization Act, streamlined chapter 11 cases for businesses with non-contingent, secured, and unsecured debts totaling less than $2,725,625. By proceeding under Subchapter V of the Bankruptcy Code, a debtor may, among other things, solicit disclosure and confirmation in a single-step confirmation process, make use of expedited filing deadlines, and retain equity ownership without those equity holders satisfying the “new value” exception to the absolute priority rule under 11 U.S.C. § 1129(b)). If passed, the COVID-19 Bankruptcy Relief Extension Act will ensure that...

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