Gibson Dunn Discusses the Supreme Court’s Ruling on Bankruptcy Code’s “Safe Harbor”

On February 27, 2018, the U.S. Supreme Court issued a decision in Merit Management Group, LP v. FTI Consulting, Inc. (No. 16-784), settling a circuit split regarding the “safe harbor” provision in § 546(e) of the Bankruptcy Code. That section bars the avoidance of certain types of securities and commodities transactions that are made by, to or for the benefit of covered entities including financial institutions, stockbrokers and securities clearing agencies.

Circuits had split regarding whether the safe harbor protects a transfer that passes through a covered entity, where the entity only acts as a conduit and has no beneficial … Read more

Gibson Dunn explains Delaware Decision Invalidating Attempt to Prevent Bankruptcy Through “Golden Share”

A Delaware bankruptcy court has invalidated a lender’s attempt to prevent a borrower from filing bankruptcy by having the borrower amend its operating agreement to require unanimous consent among its members to file bankruptcy and then issuing one “golden share” to the lender.

In In re Intervention Energy Holdings, LLC,[1] the borrower had defaulted under a senior secured loan and subsequently entered into a forbearance agreement with its lender.  As part of the forbearance agreement, the lender required the borrower to agree to (a) amend its operating agreement to require approval of each holder of common units prior … Read more

Gibson Dunn discusses MPM Silicones, LLC – The Dawn of a New Golden Age for Debtors?

On May 4, 2015, the District Court for the Southern District of New York affirmed Bankruptcy Judge Robert D. Drain’s ruling confirming the chapter 11 plan of MPM Silicones, LLC. The holdings of the District Court and the Bankruptcy Court are likely to have wide ranging ramifications, because they decrease the bargaining position of secured creditors in plan negotiations, while increasing the rights of debtors and junior creditors in contentious chapter 11 cases.

I. Background 

On August 26, 2014, Judge Drain ruled on several plan confirmation issues, including, most notably, that the debtors, Momentive Performance Materials, a manufacturer of silicone … Read more

Gibson Dunn discusses Delaware Court of Chancery Decision Rejecting Continuous Insolvency Requirement for Creditor Derivative Claims

On May 4, 2015, Vice Chancellor Travis Laster of the Delaware Court of Chancery issued an opinion providing a thoughtful analysis of when the creditors of an insolvent corporation have the right to bring derivative claims, such as those alleging breach of director fiduciary duties. In Quadrant Structured Products Co., Ltd. v. Vertin,[1] the Court examined a question of first impression under Delaware law: whether that law imposes a continuous insolvency requirement for creditors to maintain standing to bring derivative claims against a corporation. The Court began its analysis with a discussion of the nature of a creditor’s … Read more

Gibson Dunn discusses Lien-Creditor Rights after Momentive

On October 14, 2014, the Bankruptcy Court for the Southern District of New York issued a bench ruling (as later modified, the “Bench Ruling“) in the In re MPM Silicones, LLC (“Momentive“) Chapter 11 cases (Case No. 14-22503-rdd, Adv. Proc. Nos. 14-08248 [Docket No. 50], 14-08247 [Docket No. 60]), which serves as a stark reminder of the function and importance of carefully drafted and negotiated intercreditor agreements in a Chapter 11 context.  Intercreditor agreements generally govern the rights of multiple classes of creditors vis à vis each other.  A typical intercreditor agreement directs future distributions post-default … Read more