Delaware Trust Co. v. Energy Future Intermediate Holding Co. (In re Energy Future Holdings Corp.)
533 B.R. 106
Bankr. D. Del.2015Background
- EFIH issued 10% First Lien Notes due 2020 governed by a New York-law Indenture; make-whole ("Applicable Premium") and rescission/deceleration provisions are at issue.
- EFIH filed Chapter 11 on April 29, 2014; debtors obtained DIP financing and repaid noteholders principal and accrued interest on June 19, 2014, while preserving parties’ rights regarding make-whole claims.
- The Trustee (representing non‑settling noteholders) sought retroactive relief from the automatic stay to allow rescission of bankruptcy-caused acceleration and deceleration of the Notes, which would trigger the Applicable Premium.
- The Court previously granted summary judgment for debtors on most counts but found a genuine issue whether cause existed to lift the stay nunc pro tunc to permit the Trustee’s rescission; that issue was tried April 20–22, 2015.
- Trial evidence showed the Trustee’s make‑whole calculation at ~$431 million; debtors argued lifting the stay would greatly prejudice the estate (and equity) and jeopardize restructuring, while noteholders (sophisticated investors) could have mitigated losses and had opportunities to participate in the DIP.
- The Court concluded that, under the totality of circumstances, cause does not exist to lift the automatic stay nunc pro tunc; accordingly the Trustee’s motion was denied and judgment entered for the debtors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether cause exists to lift the automatic stay nunc pro tunc to allow rescission/deceleration and payment of the Applicable Premium | Trustee: debtors are solvent for Phase One; Trustee likely to succeed on the merits under the Indenture so stay should be lifted to permit deceleration and make‑whole recovery | Debtors: lifting the stay would cause great prejudice to the estate/equity (hundreds of millions), harm does not outweigh debtor hardship, and stay should remain | Denied: no cause to lift the automatic stay nunc pro tunc; judgment for debtors |
| Whether repayment on June 19, 2014 was an Optional Redemption entitling noteholders to the Applicable Premium | Trustee: repayment should be treated as redemption if deceleration is rescinded and make‑whole owed | Debtors: bankruptcy filing caused automatic acceleration so June 19 repayment was not an Optional Redemption under the Indenture | Held for debtors on this Contested Matter; repayment was not an Optional Redemption |
| Whether Trustee’s June 4, 2014 rescission notice was effective despite the stay | Trustee: timely majority-holder rescission should be effective as of notice | Debtors: rescission notice was an act to collect/alter rights and was void ab initio because of the automatic stay | Held: rescission notice violated stay and is void ab initio unless court grants retroactive relief (which it denied) |
| Whether harm to noteholders from maintaining stay considerably outweighs harm to debtor from lifting stay | Trustee: noteholders face substantial loss (make‑whole); solvency favors lifting | Debtors: harm to estate/equity (~$431M, potentially >$900M with other claims) outweighs noteholders’ harm; noteholders are sophisticated and could mitigate | Held: harm to noteholders does not considerably outweigh harm to the debtors; factor weighs against lifting stay |
Key Cases Cited
- In re Wilson, 116 F.3d 87 (3d Cir.) (totality‑of‑circumstances standard for "cause" to lift stay)
- In re Downey Fin. Corp., 428 B.R. 595 (Bankr. D. Del. 2010) (three‑factor test: prejudice to estate, hardship balance, probability of success)
- LaSalle Nat. Bank v. Perelman, 82 F. Supp. 2d 279 (D. Del. 2000) (debtor fiduciary duties include considering shareholders/equity interests)
- In re Gen. Growth Props., 409 B.R. 43 (Bankr. S.D.N.Y. 2009) (directors may consider shareholders when debtor is solvent)
- In re RNI Wind Down Corp., 348 B.R. 286 (Bankr. D. Del. 2006) (movant must make prima facie showing for stay relief; burden shifts thereafter)
- In re MPM Silicones, LLC, 531 B.R. 321 (S.D.N.Y. 2015) (affirming denial of retroactive stay relief to rescind bankruptcy acceleration; parties bargain contemplates automatic stay)
- In re Myers, 491 F.3d 120 (3d Cir. 2007) (factors for awarding damages for willful stay violations)
- In re Rexene Prods. Co., 141 B.R. 574 (Bankr. D. Del. 1992) (discussion of burden under §362(g))