Death Trap Provisions in Chapter 11 Plans: Minimizing the Likelihood of a Cramdown; Incentivizing Consensus
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Bankruptcy
- event Date
Thursday, January 18, 2024
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE webinar will discuss how restructuring counsel use "death trap" provisions and related tools to create an accepting impaired class of creditors and thereby ensure confirmation but without violating the confirmation requirements or running afoul of the prohibition against sub rosa plans or the absolute priority rule.
Ms. Sinclair is a partner in the Business Reorganization and Restructuring Department. She represents debtors, lenders, official committees of unsecured creditors, and ad hoc creditor groups comprised of hedge funds, financial institutions and other sophisticated investors in distressed situations. Ms. Sinclair advises clients on all aspects of complex chapter 11 cases and has experience with distressed acquisitions, bankruptcy litigation, cross-border matters and out-of-court restructurings. She has represented parties in restructurings in industries such as real estate, aviation, manufacturing, retail, energy, and pharmaceuticals.
Mr. Zahralddin-Aravena is a member of the Corporate, Bankruptcy, Complex Business & Commercial Litigation, Digital Asset, and Ukraine Conflict Response Practices. He is a skilled business lawyer and litigator with significant experience advising clients in corporate and commercial litigation, insolvency, distressed M&A, compliance, corporate law and entity formation, corporate governance, commercial transactions, cyber law, regulatory actions, and cross-border issues. He represents clients in all aspects of bankruptcy and restructuring. He has extensive experience in international commercial law issues, including cross-border insolvency, federal bankruptcy court matters, assignments for the benefit of creditors, and receiverships. His international law experience, particularly in international commercial transactions, brings a unique and nuanced approach to business issues inside and outside distressed situations.
Mr. Mordkoff is a partner in the Business Reorganization & Restructuring Department. Andrew represents debtors, creditors, sponsors and investors in large, complex, chapter 11 cases and out-of-court restructurings. She has been significantly involved in numerous complex deals, including acting as counsel to Momentive in its landmark chapter 11 cases, Core Media, the owner of American Idol in its complex cross-border filing, and Aegerion Pharmaceuticals in its successful reorganization which was nominated in 2020 for The Deal’s Restructuring Deal of the Year.
A plan of reorganization proposes what each class will receive based on the debtor's projected post-confirmation value. But even reasonable minds can differ on valuation, and different constituencies in the case, such as the debtor, second-tier lienholders, or equity holders, often advocate for a higher or lower value based on preferred outcomes. Creditors may feel entitled to distribution.
To avoid long and costly valuation or cramdown litigation that results in a Pyrrhic victory, a death trap offers a junior impaired class more to accept a plan and less if they reject it. Restructuring agreements may require such provisions.
But these provisions can run afoul of the Bankruptcy Code's prohibition against sub rosa plans or the absolute priority rule and generate their own litigation. It can be difficult to determine if these provisions strip creditors of existing rights. They can also be tied to overreaching releases or other "coercive" provisions that attempt to shield controversial provisions from objection or put creditors in an impossible position.
Listen as this esteemed panel discusses how these provisions started and evolved, how they can be used effectively in any size case, and what creditor classes that anticipate facing death trap provisions can do.
- The importance with valuations in Chapter 11
- The basics of the death trap provision
- What classes death trap provisions target
- Objections and court approval
- Recent cases
The panel will consider these and other important issues:
- What do courts consider in determining whether to approve plans with death trap provisions?
- What are impermissible uses of death trap provisions?
- How can the parties assess whether death trap provisions really minimize the likelihood of a contested confirmation?
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