As said before in this blog bankruptcy courts and laws are different in many ways to the traditional law. Not so often the bankruptcy laws have a great impact on the public or are greatly advertised in the media.

But for 2017 the stage is different. There are some changes that may come by the end of the year brought by some cases that are sure to change the game for good. Let’s take a look at some of those changes that could happen in 2017 and what consequences they can bring to the bankruptcy litigation.

The first really big change, and worrying one, is the implementation of a strategy called a structured dismissal.  The definition of a “Structured Dismissal” is that a debtor can avoid Chapter 11 when the court simply dismisses the case. The debtor also makes a deal with the creditors to avoid future Chapter 11 liquidations.

At first glance, it can seem as a good way out for companies filing for Chapter 11 but in the end, it is going against the priority payment order where the Bankruptcy Code is very strict. For example, it can give priority to getting money to recover the company but forget about the employees and their rights.  Jevic Holding Corp. is a good example because in 2012 they received money to restructure but then faced claims by employees for violations of the federal Worker Adjustment and Retraining Notification Act.  So, if this case is ruled in favor of the company it can open a priority scheme problem: who gets paid first and based on that how do creditors and debtors negotiate their deals and arguments before, during and after the bankruptcy case.

Another big change could come in the shape of the responsibility debtors have when making whole payments to noteholders, specifically in the issue that gives the benefits to debtors to not pay post-petition interest to creditors when they have early payments on the debt. In a case where Momentive Performance Materials Inc. is involved, Judge Robert Drain said that since these payments are part of the Chapter 11 filing they have to be accelerated so there would be no need for a prepayment that made up for the whole payment. Then at the district court level, the judge was supported but the noteholders were not so happy and went to the Second Circuit.

The previous case was happening in New York while in Delaware another case under the eyes of Judge Christopher S. Sontchi was on the way and practically had the same outcome and had the same decision as Judge Robert Drain. The decision was then taken down in the Third Circuit.

So, in the case of Momentive Performance Materials Inc the Second Circuit´s decision will greatly impact not only on how strict indenture agreements are done and if companies can still borrow and the rules for such loans but also where bankruptcy cases are filed. Depending on such decision it is more likely that many cases move from Delaware to New York.

Image courtesy of Chris Potter at

For this year there is a special case that can change the way authorities look at bankruptcy cases and how they control them. Authorities have always had an issue with the way responsibilities are handled in a bankruptcy filing plan. The huge and well-known casino Caesars Entertainment Operating Co. Inc. is the company involved in the case. The issue that is happening is that Liability releases for parties other than the debtor are being abused by all the parties involved. This was created to protect or to benefit certain players in the business against the consequences of filing for Chapter 11 but is has become a very common tool for negotiations with creditors, where these liabilities stretch out as far as the creditors’ professionals and advisers. Bankruptcy officials have officially stated that these practices have lost their objective and that their statutory intent has been lost.  

For example, The U.S. trustee’s office has issues with the reach of liability releases within the bankruptcy plan and with topics such as third-party releases and when one party who is not even a creditor or stakeholder does not agree with the bankruptcy plan. In the Caesars case specifically, this third-party releases can save Apollo Global Management and TPG Capital from a certain part of the Chapter 11 demands because as soon as they purchased the casino for $30 billion in the year 2008 they starting moving the assets to other subsidiaries of the company.  

This case has been long followed by the bankruptcy litigation community so the outcome is very important because if the plan is approved it will go against the law and it can raise some awareness.

Be sure to also read this post about companies in financial distress and how to spot them

* Featured Image courtesy of macrahe at