Case Type:
Case Status:
22-1940 (2nd Circuit, Dec 14,2022) Published
The U.S. Court of Appeals for the Second Circuit (Circuit) affirmed the August 31, 2022, order of the U.S. District Court for the Southern District of New York (DC) affirming a June 18, 2022, order issued by the U.S. Bankruptcy Court for the Southern District of New York (BC), confirming the plan of Latam Airlines Group S.A. and its affiliates (DRs), rejecting the arguments by certain creditor with unsecured claims against Tam 10 Linhas Aéreas S.A. (TLA), one affiliate, that they were entitled to post-petition interest on their claims under § 1124(1) or the equitable solvent-debtor exception.
Procedural context:
Among other things, the DRs' plan of reorganization provided that creditors with unsecured claims against TLA (TLA Claimholders) will be paid in full, except for any post-petition interest. The BC made this decision for two reasons: (1) this treatment rendered these claims unimpaired under § 1124(1) because § 502(b)(2) provides that unmatured interest may be excluded from a claim; and (2) the solvent-debtor exception, an equitable doctrine permitting the payment of post-petition interest by a solvent 4 debtor in limited circumstance, could and did not apply because TLA was insolvent. In a timely appeal, the TLA Claimholders contended the following: (1) unless they receive post-petition interest, their claims are “impaired” under § 1124(1); (2) that TLA is solvent and that its solvency makes the solvent debtor exception applicable; and (3) that the BC's test for assessing solvency was legally flawed.
The main debtor--Latam Airlines Group S.A. (Latam)--is a holding company, which owns numerous South American airlines, and TLA, a Brazilian airline, is one of its subsidiaries. On May 26, 2020, Latam and several of its affiliates filed for chapter 11 bankruptcy protection in the BC; on July 9, 2020, TLA filed it own petition. Pursuant to Fed. R. Bankr. P. 1015(b), the BC procedurally consolidated Latam's case with those of its affiliates, including TLA. Now administratively consolidated, the DRs proposed a plan of reorganization in late 2021 ((Plan). The Plan depends on raising $5.442 billion through a new equity offering in Chile (the Chilean Offering). To ensure that sufficient funds will be raised through the Chilean Offering, several large claimholders and a group of Latam's largest shareholders have committed to purchase up to $5.4 billion of shares.
Pierre N. Leval; Denny Chin; and Eunice C. Lee

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