643 B.R. 741
S.D.N.Y.2022Background
- LATAM Airlines Group and affiliates (including TLA/TAM Linhas Aéreas S.A.) filed Chapter 11 in 2020; TLA is an indirect wholly owned subsidiary of LATAM.
- The Ad Hoc Group of TLA Claimholders (the appellant) holds ~$300 million in unsecured claims against TLA evidenced by four debt instruments that provide contractual post-default interest and fees; TLA defaulted in 2020.
- The Debtors’ confirmed Chapter 11 Plan classified TLA claimholders in Class 6 as unimpaired; allowed Class 6 claims are paid in cash equal to the allowed claim amount, but do not include post-petition interest (PPI).
- The TLA Claimholder Group objected, asserting TLA was solvent and therefore entitled under the “solvent-debtor” exception to PPI at the contractual rate (roughly $150 million); Bankruptcy Court held TLA insolvent and denied PPI.
- Bankruptcy Court issued a Confirmation Opinion, denied a motion to stay confirmation, and refused to certify novel legal questions for immediate appellate review; the district court affirmed the confirmation and denied the stay.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether TLA was solvent and thus the claimant entitled to post-petition interest (PPI) | TLA is solvent; solvent-debtor exception requires payment of PPI at contract rate | PPI generally disallowed under §502(b)(2); solvent exception only if debtor solvent and here TLA is insolvent | Bankruptcy Court’s factual finding that TLA was insolvent affirmed; no PPI granted |
| Proper valuation standard to determine solvency | Valuation should reflect going-concern price (what a willing buyer would pay for the whole business) | Fair value for solvency uses asset-by-asset fair-market prices obtainable in a prudent sale (Roblin standard) | Asset-by-asset fair-market sale approach upheld; going-concern argument rejected |
| If solvent, applicable PPI rate (contract rate vs federal judgment rate) | Contract rate provided in instruments | At most federal judgment rate would apply | Bankruptcy Court held that, even if solvent, any PPI would be at federal judgment rate; district court accepted that as the court’s view |
| Whether claim for PPI can be compelled irrespective of solvency via novel statutory reading of §§1124/1129/726 (new theory) | Plan itself (and Code) requires PPI regardless of solvency under absolute priority and related provisions | Argument was not raised below and is forfeited; it would upend long-established bankruptcy rules and the confirmed Plan | New statutory theory was forfeited and not considered; court declined to adopt radical change in law |
| Motion to stay confirmation pending appeal | Stay needed to prevent irreparable harm/equitable mootness | Granting a stay would threaten Debtors’ financing, restructuring, and public interest in plan consummation | Stay denied (appellant unlikely to succeed; harms to Debtors/public outweigh applicant’s injury) |
Key Cases Cited
- Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156 (U.S. 1946) (recognizes rare solvent-debtor exception permitting postpetition interest)
- United Sav. Ass'n of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (U.S. 1988) (discusses postpetition interest rules and valuation concepts)
- Nicholas v. United States, 384 U.S. 678 (U.S. 1966) (postpetition interest for unsecured creditors generally unavailable)
- Ruskin v. Griffiths, 269 F.2d 827 (2d Cir. 1959) (noting solvent-debtor exception under pre-Code/post-Code law)
- In re Roblin Indus., Inc., 78 F.3d 30 (2d Cir. 1996) (fair value for a going concern measured by fair-market price obtainable in a prudent sale)
- In re Lehman Bros. Holdings Inc., 855 F.3d 459 (2d Cir. 2017) (standard for clear-error review of bankruptcy factual findings)
- In Matter of Motors Liquidation Co., 829 F.3d 135 (2d Cir. 2016) (deference to reasonable bankruptcy court factual account)
- United States v. Harrell, 268 F.3d 141 (2d Cir. 2001) (preservation doctrine: issue must fairly appear in the record to be preserved)
- Lebron v. National Railroad Passenger Corp., 513 U.S. 374 (U.S. 1995) (discussed by appellant regarding preservation rules; Court rejected its application here)