District Court Questions Invesco’s Irreparable Harm Claims During Arguments Over Continued Stay of Robertshaw Sale Pending Appeal

Relevant Document:
Notice

Today, U.S. District Judge Keith P. Ellison heard oral arguments on former Robertshaw controlling lender Invesco’s motion to indefinitely stay the debtors’ credit-bid sale to the ad hoc group of first-out lenders and equity sponsor One Rock pending appeal. Judge Ellison took the matter under advisement and the sale remains temporarily stayed until he rules.

Invesco’s stay argument rests on its appeals of two decisions by Judge Christopher Lopez: a June 20 decision concluding that the company’s December 2023 payoff transaction breached the additional indebtedness covenant in the applicable credit agreement but denying Invesco’s request to void the transaction, and an Aug. 21 ruling classifying Invesco’s breach claims under the June 20 decision as unsecured. According to Invesco, if the sale is allowed to close it would be deprived of two possible remedies on appeal even if those decisions are overturned: restoration of its “Required Lender” status and enforcement of a first-priority lien on the sold assets.

Judge Ellison repeatedly questioned whether Invesco would suffer irreparable harm if the sale is allowed to close, suggesting that its monetary claims against nondebtors (including the ad hoc group and equity sponsor One Rock) could provide a sufficient remedy if Judge Lopez’s rejection of those claims in the June 20 decision is reversed. Andrew Glenn of Glenn Agre, for Invesco, responded that the question is not whether some form of money damages against someone might be available even if the sale closes, but whether any relief Invesco seeks on appeal would be mooted by the closing.

Glenn posed a hypothetical question: If the sale is allowed to close and the debtors, ad hoc group and One Rock prevail on all issues on appeal except one – that Invesco’s claim should have been afforded first-priority secured status ahead of the first-out credit bid debt – then Invesco will have won on appeal yet be left unable to enforce its first-priority status because the collateral was sold free and clear. Invesco’s first-priority security interest – a “cognizable remedy” – would effectively be stripped without due process, Glenn asserted.

Eric Leon of Latham & Watkins, counsel for the debtors, focused on Judge Lopez’s findings regarding Invesco’s remedies for the covenant breach. According to Leon, consummation of the sale cannot deprive Invesco of any remedy on appeal because Judge Lopez gave Invesco the exact remedy it was entitled to under the credit agreement: an unsecured claim for prepayment of the proceeds of the prohibited indebtedness it did not already receive.

Peter Friedman of O’Melveny & Myers, counsel for the ad hoc group, said the fact that Invesco would only receive $30,000 on its $50 million allowed unsecured breach claim under the debtors’ confirmed plan does not mean it did not receive an appropriate remedy for the debtors’ breach. Judge Ellison seemed to agree, remarking that in his experience “unsecured creditors in bankruptcy normally can expect nothing.” “That’s the way bankruptcy works,” the judge added.

Leon also argued that the possibility that Invesco’s appeal may be equitably mooted by the sale closing is not, by itself, sufficient to justify a stay of closing pending appeal. Judge Ellison told Glenn that, “for those of us who have practiced in bankruptcy for any length of time, confirmation of a plan mooting a legal issue is common.”

Glenn responded by emphasizing that Invesco is not seeking a stay of plan confirmation but of the sale (though the plan is premised entirely on the sale closing and a stay would likely have that effect). Even if there were no confirmed plan, Glenn explained, allowing the sale to close would moot Invesco’s appeal of the decision rejecting its claim to first priority ahead of the credit bid debt.

Erica Weisgerber of Debevoise, counsel for One Rock, raised the possible harm to the debtors if a stay delays their exit from bankruptcy. Allowing the sale to proceed and letting the debtors emerge under the confirmed plan is “critical” to the company’s success, Weisgerber asserted.