913 F.3d 533
5th Cir.2019Background
- Ultra Petroleum and subsidiaries filed Chapter 11 in 2016 while insolvent; during the case commodity prices rose and the debtors became solvent.
- Debtors’ confirmed plan paid certain creditors (Class 4) principal, minimal prepetition interest, and postpetition interest at the federal judgment rate, and characterized Class 4 as unimpaired.
- Class 4 creditors objected, asserting contractual entitlement to a Make-Whole Amount on acceleration and to postpetition interest at contractual default rates (totaling roughly $387 million).
- The bankruptcy court held a class is impaired if a plan fails to give a creditor everything state law/contract would provide (so the plan impaired Class 4), and ordered payment of the Make-Whole and contractual postpetition default interest.
- The debtors appealed, arguing the Bankruptcy Code (particularly § 502(b)(2) and § 726/§1129 constructs), not the plan, defines and limits allowable claims; the Fifth Circuit reversed the impairment ruling and vacated/remanded the Make-Whole and interest determinations for the bankruptcy court to decide in the first instance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a claim is "impaired" under §1124(1) when a plan does not provide amounts that would be disallowed by the Code | Creditors: impairment should be measured against what state law/contract would allow; plan that withholds that is impairing | Debtors: impairment turns on whether the plan itself alters legal/equitable/contractual rights; Code disallowance is not plan impairment | Court: A class is unimpaired under §1124(1) unless the plan itself alters rights; Code disallowance does not, by itself, create impairment (followed PPI) |
| Whether a contractual Make-Whole Amount is disallowed as "unmatured interest" under §502(b)(2) | Creditors: Make-Whole is contractually due and (under solvent-debtor principles) recoverable | Debtors: Make-Whole is the economic equivalent of unmatured interest and thus disallowed by §502(b)(2); ipso facto acceleration clauses do not control maturity | Court: Didn't decide on the merits; indicated persuasive arguments that Make-Whole may be unmatured interest but remanded for bankruptcy court to resolve in first instance |
| Whether creditors are entitled to postpetition interest at contractual default rates or only at a statutory/"legal" rate | Creditors: contract and solvent-debtor tradition entitle them to contractual postpetition interest | Debtors: Code governs; if any postpetition interest is owed it is limited (e.g., to federal judgment rate under §1961 or other statutory standard) | Court: Left unresolved; vacated award of contractual default-rate postpetition interest and remanded to determine proper source and rate (noting options: §1961, equitable power, or pre-Code principles) |
Key Cases Cited
- In re PPI Enterprises (U.S.), Inc., 324 F.3d 197 (3d Cir. 2003) (plan impairment depends on what the plan itself alters, not what the Code disallows)
- In re Pengo Indus., Inc., 962 F.2d 543 (5th Cir. 1992) (§502(b)(2) disallows the economic equivalent of unmatured interest)
- Vanston Bondholders Protective Committee v. Green, 329 U.S. 156 (U.S. 1946) (discussion of oversecured-creditor interest recovery in bankruptcy)
- Ron Pair Enterprises, Inc. v. Travelers Indemnity Co., 489 U.S. 235 (U.S. 1989) (interpretation of contractual rights and bankruptcy preemption principles)
- Timbers of Inwood Forest Associates, Ltd. v. United Savings Ass'n of Texas, 484 U.S. 365 (U.S. 1988) (treatment of secured creditor rights and §506(b))
- Sexton v. Dreyfus, 219 U.S. 339 (U.S. 1911) (historical rule barring post-commission/postpetition interest and its exceptions)