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Herrick’s Work on Behalf of Well-Renowned Bankruptcy Professors Supported Dismissal

In October 2021, LTL Management LLC (“LTL”), an entity created by Johnson & Johnson (“J&J”) to hold its liabilities to cancer victims exposed to talc in J&J’s products, filed for Chapter 11 bankruptcy protection. The Herrick team filed amicus briefs on behalf of a group…

In re Compute North Holdings, Inc., No. 22-90273 (Bankr. S.D. Tex.)

  • Compute North Holdings, Inc., a large data center with a focus on cryptocurrency mining, files for Chapter 11 protection amidst an atrocious business environment for all things crypto.
  • Compute North was pushed into bankruptcy after its relationship with one of its primary lenders broke down.
  • Debtors’ plan to sell all its assets quickly may be a challenge for unsecured creditors.

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Continue Reading Cryptocurrency Mining Data Center Files for Chapter 11 Amid Crypto-Recession

Bankrupt cryptocurrency lender Celsius Network LLC recently sought permission to sell some of its “stablecoin” for U.S. dollars to continue operations through its Chapter 11. Celsius requires court approval for the sale pursuant to an earlier order requiring court authorization to convert its cryptocurrency to cash. According to Celsius, the sale of its stablecoins would pose no risk to creditors due to the relative stability provided by stablecoins versus traditional cryptocurrencies. Stablecoins are fiat-pegged cryptocurrency meant to track government issued currencies, usually the U.S. dollar. By pegging its value, stablecoins seek to reduce volatility and offer a stable crypto option not subject to market fluctuation. This allows investors to trade digital assets potentially free of the big swings inherent in assets like Bitcoin and Ethereum which are both down over 70% since last November.
Continue Reading Bankrupt Cryptocurrency Debtor Seeks Sale of Stablecoins

Restructuring and Finance Litigation partner Steven B. Smith recently met with Phil Neuffer, the Managing Editor of ABF Journal, to discuss the recent United States Supreme Court decision Siegel v. Fitzgerald, No. 21-441, in which the Court unanimously held that a significant quarterly  fee increase applicable to debtors in the United States Trustee…

Last November, Judge John Dorsey of the Delaware Bankruptcy Court held in the Mallinckrodt chapter 11 case that the debtors did not have to pay a $94 million “make-whole” premium that was provided for in an indenture governing first lien notes. The indenture provides for automatic acceleration following an Event of Default, which includes a bankruptcy filing. Acceleration makes “the principal of, premium, if any, and interest on all the Notes . . . immediately due and payable . . . .”

A “make-whole” premium is a loan provision to compensate a lender if a borrower repays the debt before maturity for the loss of the lender’s anticipated yield, and can also be called “yield maintenance,” or a “redemption” or “prepayment” premium. The make-whole amount is typically the net present value of the interest payments that the lender would have received if the debt was paid at maturity. While make-whole premiums are generally enforceable under state law outside of bankruptcy, courts have rendered conflicting decisions on their enforceability in chapter 11. Economics drives the continuing bankruptcy court litigation over make-whole payments. For large bond issues, the make-whole amounts can often exceed nine figures.
Continue Reading Landmark Delaware Bankruptcy Court Ruling that Debtors Did Not Have to Pay Make-Whole Premium Was in Error, First Lien Lenders’ Argue on Appeal

The introduction in 2020 of subchapter V for small business chapter 11 cases was the biggest structural reform in business bankruptcies since the enactment of the Bankruptcy Code in 1978. Subchapter V was enacted in 2019 as part of the Small Business Reorganization Act and became effective in February 2020.  It was originally limited to cases with $2,725,625 or less in debt, but when Congress passed the CARES Act in 2020 in response to the COVID pandemic, it increased the subchapter V debt limit to $7.5 million. While that increase was originally scheduled to expire on March 27, 2021, it was extended through March 27, 2022.

Now there appears to be bipartisan support in Washington for making the $7.5 million debt limit permanent. Senator Charles Grassley, a ranking member of the Senate Judiciary Committee, who has had a long interest in reforms of the Bankruptcy Code, has said that he supports a permanent revision in the debt limit.
Continue Reading Congress May Consider Making $7.5 Million Debt Limit for Subchapter V Permanent: Should the Limit Be Increased?

On November 22, 2021, the United States Bankruptcy Court for the Southern District of New York announced a modification to its judge-assignment scheme for “mega chapter 11 cases.” Under the new Local Bankruptcy Rule 1073-1(f), which took effect on December 1, 2021, mega chapter 11 cases will be randomly assigned among each of the district’s …

Some recent high profile restructuring debtors made multi-million dollar retention bonuses on the eve of bankruptcy filings. The U.S. Government Accountability Office (GAO) took notice of these pre-petition payments and, in September 2021, published a report with data showing that debtors may be “working around the [Bankruptcy] Code’s restrictions” by paying bonuses prior to filing…

The U.S. Bankruptcy Court for the District of Delaware recently denied the US Trustee’s motion to compel post-confirmation quarterly fees from Paragon Offshore, plc under 28 U.S.C. § 1930.[1]

The court described the case’s facts as simple: Paragon (and some related entities) filed for Chapter 11 in early 2016. In June of 2017, its reorganization plan was approved. The plan established a litigation trust (the Paragon Litigation Trust) to pursue certain claims against third parties. The plan (and the litigation trust agreement) became effective in July of 2017, and the claims were transferred into the trust from July through September 2017 (without Paragon retaining any interest in or control over them). During that time, Paragon’s distributions exceeded $623 million, and Paragon paid the US Trustee the then-applicable maximum fee for those distributions under 28 U.S.C. § 1930.

In December of 2017, the litigation trust brought its claims against third parties. The case settled for $90.375 million (approved in February of 2021), and the settlement payments to the trust occurred in mid-March. The trust began distributing those payments to its beneficiaries, and the US Trustee moved to compel Paragon and the Paragon Litigation Trust to pay post-confirmation quarterly fees under Section 1930(a)(6) based on the trust’s payments to its beneficiaries. …
Continue Reading Paragon Offshore, plc: US Trustee Denied Quarterly Fees Based on Litigation Trust’s Payments to Its Beneficiaries