The Year In Bankruptcy: 2022

• Jurisdiction: United States,Federal
• Law Firm: Jones Day
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Trials & Appeals & Compensation
• Author: Mr Mark Douglas
• Published date: 01 February 2023

One year ago, we wrote that, in early 2021, it was widely anticipated that the unprecedented pressure the COVID-19 pandemic brought to bear on the U.S. economy would lead to a boom in corporate bankruptcy filings. That boom never materialized. Instead, business bankruptcy filings in the U.S. plummeted in 2021. That trend continued until the last quarter of 2022. At that time, the volume of business bankruptcies began to swell due to a maelstrom of factors, including the persistence of the pandemic (especially in China, where vaccination rates are low and the population has little resistance due to strict lockdown protocols); the highest inflation in 40 years; spiking interest rates that put an end to the most recent era of cheap financing and lenders' willingness to forbear or extend loan maturities; supply-chain disruptions; and high energy costs caused in part by the war in Ukraine. Predictions of yet another recession loomed large at the end of 2022.

In the corporate bankruptcy world, 2022 will be remembered for the "crypto winter" that descended in November with the spectacular collapse of FTX Trading Ltd., Alameda Research and approximately 130 other affiliated companies. In a domino effect, the FTX bankruptcy ignited the meltdown of many other platforms, exchanges, lenders and mining operations because they did business with FTX.

The year 2022 will also be remembered for the continuing controversy over the legitimacy of seeking bankruptcy protection as a way to deal with mass-tort liabilities in chapter 11 plans that release company owners and other insiders from liability as a quid pro quo for funding payments to creditors. Other memorable developments in 2022 included the right-sizing woes of the tech sector, including industry giants Amazon, Meta and Twitter, the increasing incidence of "creditor-on-creditor" litigation in bankruptcy, and the tax-driven year-end rush to liquidate special purpose acquisition companies (SPACs), effectively marking an end to the "blank-check" company gold rush that peaked in 2021.

Business Bankruptcy Filings

According to data provided by Epiq Bankruptcy, a leading provider of U.S. bankruptcy filing data, commercial bankruptcy filings declined in 2022 by five percent, from 22,561 in 2021 to 21,396 last year. Commercial chapter 11 filings, however, increased two percent to 3,816 in 2022 from the previous year's total of 3,726. By contrast, in 2020, there were 32,517 commercial bankruptcy filings, of which 7,129 were chapter 11 cases. Small business debtor chapter 11 cases under subchapter V also increased in calendar year 2022'the 1,433 filings represented a 13 percent jump from the 1,263 filings recorded in 2021. Epiq also reported that total individual bankruptcy filings in 2022 were at their lowest level since 1985, suggesting that extensive government pandemic relief may have ameliorated financial distress for many individuals.

Data available on legal-research platform Westlaw show that 4,271 chapter 11 cases (business and non-business) were filed in 2022, compared to 4,143 in 2021, and 7,330 in 2020. According to data available from financial research company The Deal Pipeline, 112 companies with liabilities exceeding $50 million filed for chapter 7, 11 or 15 bankruptcy in 2022, compared to 114 in 2021. Chapter 11 filings by companies with at least $1 million in debt numbered 338 in 2022, compared to 378 in 2021.

Reorg, a global provider of credit intelligence, data, and analytics, reported that 2022 business chapter 11 filings in the industrials sector increased steeply (approximately 34% from 2021 levels), health care cases rose by 32%, and consumer staples filings doubled their 2021 levels. For cases with more than $100 million of liabilities, filings in the financials sector increased by 175%, with a wave of crypto bankruptcies in the latter part of the year. Reorg data also show that the sectors that fell the most from 2021 were consumer discretionary, communications, energy, real estate, and utilities.

The Deal Pipeline and Westlaw data indicate that chapter 15 petitions were filed in 2022 on behalf of 88 foreign debtors (including 19 businesses with at least $1 million in debt), compared to 165 foreign debtors (including four businesses with at least $1 million in debt) in 2021. Only two municipalities filed for chapter 9 protection in 2022, compared to three in 2021.

There were 18 billion-dollar (by debt) business chapter 11 filings in 2022, compared to 15 in 2021. Chapter 15 petitions were filed on behalf of seven foreign companies with liabilities of at least $1 billion in 2022.

Notable bankruptcy exits in 2022 included Lehman Brothers Inc., whose liquidation proceeding under the Securities Investor Protection Act'the largest bankruptcy filing ever in U.S. history'finally came to a close 14 years after the 2008-09 financial crisis. On March 15, 2022, Puerto Rico ended its nearly five-year bankruptcy, as the commonwealth successfully restructured $22 billion of debt.

Some of the most notable business bankruptcy filings of 2022 included:

• Cryptocurrency company FTX Trading Ltd., which filed for chapter 11 protection on November 11, 2022, following a loss of faith in the platform and a resulting liquidity crunch.
• Cineworld Group plc (d/b/a Regal Entertainment), the world's second-largest theater chain after AMC Theaters, which filed for chapter 11 protection on September 7, 2022, with more than $10 billion in both assets and debt, having failed to rebound from the pressure inflicted by the pandemic and a massive debt load.
• Core Scientific Inc., one of the largest U.S.-listed bitcoin miners, which filed for chapter 11 protection in the fall out from the FTX collapse on December 21, 2022, with $1.4 billion in assets and $1.3 billion in debt.
• American International Group Inc. subsidiary AIG Financial Products Corp., which filed for chapter 11 protection on December 14, 2022, with $152 million in assets and $37.9 billion in legacy liabilities stemming from the 2008-09 financial crisis.
• Financial services and consumer lending company Reverse Mortgage Investment Trust Inc., which filed for chapter 11 protection on November 30, 2022 with $10 billion in both assets and debt due to rising interest rates and overall volatility in the fixed-income and mortgage markets.
• Cryptocurrency lender BlockFi Inc., the first major bankruptcy spawned by the sudden collapse of FTX. BlockFi filed for chapter 11 protection on November 28, 2022, listing $1 billion in both assets and debt.
• Sports and energy-beverage provider Vital Pharmaceuticals Inc (d/b/a VPX Sports), which filed for chapter 11 protection on November 10, 2022, after it was ordered to pay $293 million in damages to Monster Beverage Corp. for interfering with Monster's dealings with retailers and falsely advertising the mental and physical benefits of Bang Energy drinks.
• Medical imaging supply company Carestream Health Inc., which filed for chapter 11 protection on August 23, 2022, with $2.3 billion in assets and $1.5 billion in debt, to implement a pre-negotiated chapter 11 plan that wiped $470 million in debt from its balance sheet.
• Healthcare and pharmaceuticals company Endo International plc which filed for chapter 11 protection on August 16, 2022, with $6.3 billion in assets and $9.5 billion in debt, to end a multiyear effort to resolve opioid liabilities.
• Cryptocurrency lender Celsius Network LLC, which filed for chapter 11 protection on July 13, 2022, with $10.7 billion in assets and $10.2 billion in debt, roughly a month after suspending customer withdrawals.
• Scandinavian air carrier SAS AB, which filed for chapter 11 protection on July 5, 2022, with $2.5 billion in assets and $3.5 billion in debt, to complete a restructuring in the wake of the Covid-19 pandemic.
• Cosmetics giant Revlon Inc., which filed for chapter 11 protection on June 15, 2022, with $2.3 billion in assets and $3.7 billion in debt, as it grappled with an onerous debt load and supply chain problems.
• Power plant owner Talen Energy Supply LLC, which filed for chapter 11 protection on May 5, 2022, with $4.1 billion in assets and $9.3 billion in debt, due to volatile weather patterns commodity and fuel pricing challenges and unsupportable debt.

Notable Business Bankruptcy Decisions in 2022

Bankruptcy Asset Sales. Until 2022, only two federal courts of appeals had weighed in on whether real property may be sold in bankruptcy free and clear of a leasehold interest. In Precision Industries, Inc. v. Qualitech Steel SBQ, 327 F.3d 537 (7th Cir. 2003), the U.S. Court of Appeals for the Seventh Circuit held that a real property lease can be...