In re ICL Holding Company, Inc., et al

Case No. 14-2709 (3d Cir. Sept. 14, 2015)(PRECEDENTIAL)
United States Trustee's appeal from orders approving sale and settlement were not constitutionally, statutorily or equitably moot. Constitutional mootness only applies where it is impossible to grant any effectual relief. Although prospect of recovery is remote, it is not impossible. Section 363(m) does not render statutorily moot all terms of sale agreement, even if technically integral, particularly for non-purchasers (Committee). Equitable mootness applies only in plan context, not appeal from settlement. Secured creditor may establish escrows to pay selected administrative claims (such as professional fees and wind-down costs), without paying other claims of equal priority because such funds are not property of the estate and do not implicate the distribution priorities of the Bankruptcy Code. This is so even though payment of select administrative claims were included in the APA's definition of "consideration" for the sale. Funds belonging to a secured creditor (here, $3.5 million for unsecured creditors) are not property of the estate and may be gifted to junior creditors without regard to the distribution priorities of the Bankruptcy Code. Lenders may distribute non-estate property to a lower-ranked creditor. Orders approving sale of assets and settlement affirmed.
Procedural context:
On appeal from the United States District Court for the District of Delaware
Secured lenders, who were undersecured, credit bid approximately 90% of their secured debt to acquire all of the assets of a company that operated long-term care hospitals. The acquisition was to occur through a Section 363 sale in bankruptcy cases which were to be filed after execution of the APA. The secured lenders agreed to establish an escrow for payment of legal and accounting fees of the debtors and the Committee and to finance the debtors' wind-down costs. Any unused funds in escrow reverted back to the secured lenders. On the first day of the bankruptcy case, the debtors moved to approve the credit-bid sale of substantially all of the debtors' assets, subject to higher and better bids. No other bids were received. The Committee objected to the proposed sale, but ultimately resolved its objection when the secured lenders agreed to create a $3.5 million escrow for the benefit of unsecured creditors. The settlement between the secured lenders and the Committee was approved by separate motion. The United States Trustee objected to the sale, arguing that the funds in each of the escrow accounts must be distributed according to the priorities of the Bankruptcy Code.
Ambro (author), Fuentes, Roth

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