Fifth Circuit, Like Ninth Circuit, Allows Post-Bankruptcy Contract Rate Interest In Solvent Debtor Case

• Published date: 18 October 2022
• Law Firm: Schulte Roth & Zabel
• Author: Mr Michael L Cook

"...[B]ecause Congress has not clearly abrogated the solvent-debtor exception," the U.S. Court of Appeals for the Fifth Circuit held that a reorganized solvent debtor had to "pay what it promised now that it is financially capable." In re Ultra Petroleum Corp., 2022 WL 8025329, *1, (5^th Cir. Oct. 14, 2022) (2-1). Moreover, "given [the debtor's] solvency, post-petition interest is to be calculated according to the agreed-upon ... contractual default rate ...," not the "much lower Federal Judgment Rate . . .," held the court. Id. This $387 million win for creditors follows the similar recent $200 million creditor victory in the Ninth Circuit. In re PG&E Corporation, 46 F. 4th 1047, 1053 (9^th Cir. Aug. 29, 2022) (2-1) ("Under the long-standing 'solvent debtor' exception," unsecured creditors have "equitable right to receive post-petition interest at . . . contractual or default state law rate, subject to any other equitable consideration; "because of limited" record, case remanded to bankruptcy court with "presumption" of "contractual or default post-petition interest.").

Relevance

"No circuit court [had] addressed the issue [i.e. rate of post-petition interest to unimpaired unsecured creditors], and bankruptcy courts have reached different conclusions in the rare solvent debtor case," noted the Ninth Circuit on Aug. 29, 2002, in the PG&E case, 46 F. 4th at 1052, a decision not mentioned by the Fifth Circuit in Ultra. And...