Ninth Circuit Holds Unimpaired Unsecured Creditors Entitled To Post-Bankruptcy Interest On Claims At Contractual Default Rate

• Published date: 05 October 2022
• Law Firm: Schulte Roth & Zabel
• Author: Mr Michael L Cook and Douglas S. Mintz

'Under the long-standing 'solvent-debtor exception,' plaintiffs [unsecured trade creditors] possess an equitable right to receive post-petition interest at the contractual or default state law rate, subject to any other equitable considerations, before [the debtor] collects surplus value from the bankruptcy estate,' held the Ninth Circuit on Aug. 29, 2022. In re PG&E Corporation, 2022 WL 3712498, *4 (9^th Cir. Aug. 29, 2022) (2-1). '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.' Id., at *4. In this case, additional post-petition interest to unsecured creditors at contractual rates or the California statutory interest rate, rather than the then-applicable 'much lower' 2.59 percent federal judgment rate, could total an additional $200 million. Id., at *3. The court did not impose either the contractual default rate or the California judgment rate, but instead remanded the case back to the bankruptcy court 'to weigh the equities and determine what rate of interest plaintiffs are...