Court Opinion Review: Debtor Control Over Claims Objections in DISH, Hughes Gets a Bit More Time, InKind’s Interesting Restaurant Financing Structure in True Food Kitchen

Octus’ Court Opinion Review provides an update on recent noteworthy bankruptcy and creditors’ rights opinions, decisions and issues across courts. We use this space to discuss emerging trends in the bankruptcy world. Our opinions are not necessarily those of Octus as a whole. Today we consider debtor control over claims reconciliation in DISH Wireless, an interesting exclusivity termination decision in Hughes and a novel credits-based “financing” structure in True Food Kitchen.

DISH’s Force Majeure Mini-MDL

Today we’re talking debtor – or more properly, “debtor” – control in big chapter 11 cases. First up, an interesting claims objection intervention fight in the DISH Wireless free-fall/liquidation (now split from DISH DBS’ successful prepack, as it should have been from the start) illustrates the debtor/creditor control tension currently percolating in big chapter 11 cases. Then, we’ll talk about the fights over exclusivity and retention of counsel in the free-fall bankruptcy of DISH’s EchoStar sibling Hughes Satellite Systems. Buckle up.

Last month we walked through one of the key changes in the Bankruptcy Code when it was enacted in 1978: extension of the “debtor-in-possession.” Prior to 1978, large, publicly traded businesses had to file under chapter X of the Bankruptcy Act, which required immediate appointment of a trustee to replace management, oversee the restructuring process and propose a plan.

The trustee requirement was a reaction to perceived abuses in the system prior to the mid-1930s, when future SEC chair and Supreme Court Justice William O. Douglas commissioned a series of reports detailing collusive bankruptcy and receivership practices that oppressed minority investors. One of those practices was – you guessed it – venue shopping into a few courts known for tolerating debtor abuses and approving outrageous professional fees. Shudder.

By the 1970s, however, corporate reorganization was a bit musty. The biggest complaint: debtors were avoiding chapter X in favor of state court receiverships to preserve their control over the proceedings, or bending themselves into pretzels to fit into chapter XI, which allowed management to stay in place but was limited to smaller, privately owned enterprises.

The Bankruptcy Code swung the control pendulum back toward debtors by extending the concept of the debtor in possession to all business reorganization cases under chapter 11, giving management control to set the agenda in bankruptcy.

After almost 50 years of the debtor in possession, management’s exclusive right to formulate bankruptcy strategy in chapter 11 cases has become so deeply ingrained that it is almost unfathomable for a trustee to be appointed in a straightforward, large chapter 11 case, even though that was standard practice for about 40 years. Competing plans are also rarer than hen’s teeth – as we discussed last month, exclusivity simply never ends.

This column has argued for years that courts would rather confirm a plan that does not satisfy confirmation requirements and will not go effective for years, if ever (see Sears and Steward Health) than appoint a chapter 11 trustee or convert to chapter 7. The only limits on management control of the bankruptcy case are fiduciary duties (bahahahaha) and the extraordinarily lenient reasonable business judgment standard (good luck!).

Plan release and exculpation provisions effectively neuter even those ineffectual safeguards, ensuring management can rarely be liable for their role in guiding the cases. Sure, gross negligence or willful fraud are exempted, but proving those is a monumentally high bar. In addition, gatekeeper provisions ensure the bankruptcy judge decides if management did anything wrong before a real court can provide due process.

That’s all bad. Of course, it can be quite good for secured creditors – at least for the ad hoc group providing DIP financing. These creditors get to use the hallowed debtor-in-possession as their blood boy, while giving away the store via brutal DIP terms, hilariously accelerated milestones and worthless backstops.

DISH Wireless illustrates the problem without the DIP layer. Brief SitRep: The company filed June 30 to liquidate the remaining bits of its abandoned national 5G network after everything remotely valuable (including the $5 billion Boost Mobile virtual carrier business) was transferred to other EchoStar affiliates in the wake of the debtors abandoning the buildout of their national 5G network.

That abandonment left DISH Wireless with some monster unsecured trade claims, including more than $8 billion in lease rejection damages sought by three large tower lessors (American Tower, Crown Castle and SBA), which we’ll call the Big Three. The key potential sources of recovery: estate claims against EchoStar related to that Boost Mobile transfer and tens of billions due EchoStar for selling its 5G spectrum to AT&T and SpaceX.

Obviously, EchoStar does not want to share those tens of billions in spectrum sale proceeds with the trade creditors left holding the bag when it dropped the network buildout. For starters, EchoStar already committed several billion in spectrum proceeds to pay off DISH DBS lenders and noteholders under that plan. Funded debt gets paid, trade creditors get jobbed: the classic modern chapter 11 story.

EchoStar did deposit $2.4 billion in AT&T spectrum sale proceeds into a trust account for the benefit of trade creditors, though it was not an act of sweet charity by EchoStar CEO Charles Ergen: The Federal Communications Commission demanded a trade creditor trust as a condition for approving the spectrum sale to AT&T. EchoStar’s principal goal in the DISH cases sure seems to be to limit the amount of spectrum proceeds they have to share with trade creditors to that $2.4 billion trust, and not a penny more.

In fact, EchoStar has tried to erode even that $2.4 billion by arguing that a disputed $8.8 billion intercompany claim held by another trust for the benefit of DISH DBS noteholders should share in the pot. The FCC rejected this argument, but EchoStar has asked the FCC for reconsideration, arguing that only the bankruptcy court can decide the issue. Look, don’t get us wrong – we’d probably do the same thing if we were Ergen – but it’s still some impressive chutzpah, and further evidence of just how friendly debtors think mega-case bankruptcy judges are.

Since well before the bankruptcy was filed, DISH Wireless has pursued another avenue to avoid paying the trade creditors: objecting to their claims. After shutting down its nationwide 5G effort, the company sent letters to trade creditors insisting that they were owed nothing because the FCC forced DISH Wireless to drop the 5G network, triggering the force majeure provisions in the applicable agreements (or the state law doctrine of frustration of purpose, but we’re going to talk about both defenses under the label of force majeure).

Force majeure sure is coming up a lot these days. It’s starting to feel like when everyone started talking about MAC clauses as the dam broke during the Global Financial Crisis.

We really wanted to build that beautiful 5G network with you, the debtors said, and we would’ve gotten away with it too, but for those pesky FCC commissioners. Alas, we had no choice but to sell our spectrum rather than forfeit it, preventing us from building our network – and that means you get bupkis from that tens-of-billions-of-dollars pool we’re giving to others (and ourselves!).

Obviously the trade creditors weren’t going to just accept that, so about a dozen sued DISH Wireless, alleging breach of contract and seeking a determination that force majeure does not apply. The trade creditors saw the potential chapter 11 coming – maybe some of them subscribe to Octus! – so some of them also sued EchoStar, alleging the parent tortiously interfered with its subsidiary’s trade agreements. That gives them a potential hook to get to those spectrum proceeds.

In March, DISH Wireless asked the federal Judicial Panel on Multidistrict Litigation, or JPML, to centralize the force majeure suits in a single, coordinated multidistrict litigation proceeding, or MDL, where a single court would handle pretrial procedure, including selecting “bellwether” trials. An MDL is not a class action; the results in the bellwether trials are not binding on all consolidated cases, just on the named parties.

Instead, the bellwether results are meant to be persuasive – a sample of possible outcomes to provide inputs for a global settlement. The idea is that the result in representative bellwether trials – chosen for their general suitability as test cases, including trial jurisdiction and predominance of common issues – will introduce some reality into the parties’ negotiations.

In their JPML motion, DISH Wireless argued that each of the cases was “based on substantially similar allegations and claims.” According to DISH Wireless, “[a]ll of the Towers Actions rest on the same fundamental factual questions.”

Alas, in early June the JPML denied consolidation, finding that “centralization is not necessary for the convenience of the parties and witnesses or to further the just and efficient conduct of the litigation.” According to the panel, although there are “some common factual questions,” the cases rested on different contracts under different state law regime and, as result, “centralization is not necessary or appropriate here.”

Our guess is a dozen claims just wasn’t going to do for the JPML when many MDLs involve tens of thousands of suits. Plus, MDLs these days seem to focus mostly on mass torts rather than contract disputes between sophisticated business entities.

A few weeks after the denial, DISH Wireless joined the DISH DBS RSA and filed chapter 11 with a joint “prepackaged” plan based on 1,200 accepting votes by DISH DBS noteholders with interests in that intercompany claim. We’ve gone into that, it’s over. The point for us now is that DISH Wireless needed a backup strategy to reduce or eliminate those tower claims so litigation against EchoStar related to Boost Mobile and efforts to claw back more of those spectrum proceeds got quashed. And they need to do it relatively quickly and cheaply.

The simple answer would be to convert the cases to chapter 7 and let a trustee object to the claims on a contingency basis. Remember, there is no business left here to reorganize. Even the special board committee floated chapter 7 conversion. But that would be a “suboptimal” result for company leadership because the debtors would lose the ability to control (and settle) potential estate claims against EchoStar related to that Boost Mobile transfer and any claims to reach the spectrum proceeds.

You thought we wouldn’t circle back to that? Oh ye of little faith. In fact: Control over the chapter 11 process is actually DISH Wireless’ most valuable remaining asset, and it is currently in the hands of EchoStar and its appointed special board committee. To be fair, the special committee has said the claims are potentially valuable and has not completely rolled over. But giving up control would mean handing leverage to the trade creditors who dominate the unsecured class and their best place to play that leverage is to extract value out of EchoStar. If you’re sitting at the top of this mess, that absolutely cannot happen.

So DISH Wireless came up with a new plan: recreate the failed MDL in the chapter 11 case. Now that all of these buildout claims against DISH Wireless are in one forum – the bankruptcy court – the debtors can pursue a bellwether strategy, though they can’t call it that. To do this, the debtors objected only to the very large tower lease claims held by the Big Three, effectively selecting their own MDL bellwethers.

If the debtors prevail on their force majeure defense to the Big Three claims, that would not be technically binding on the other buildout creditors. Bankruptcy claims objections, like individual cases in an MDL, remain substantively separated and rulings in contested matters and adversary proceedings related to particular claims only bind those parties who participated. But the result would, like a bellwether verdict, provide pretty persuasive authority that could be used to hammer the remaining smaller trade creditors.

After all, the same individual human – Judge Christopher Lopez – would try both the Big Three objection and force majeure objections to the other trade claims. What are the odds that this individual human, with just one brain, would find force majeure applies to the Big Three and not some smaller tower lessor or service provider?

Of course the buildout creditors can see what is going on here. On Sept. 11, Comcast moved to intervene in the debtors’ objection to the Big Three’s claims, arguing that since the debtors intend to object to Comcast’s $83 million claim on force majeure grounds too, it should be able to intervene to prevent adverse findings that might be used against it later.

Yes, you heard that right: Comcast wants the debtors to object to its claims, now, even though the debtors don’t want to for obvious tactical reasons. The debtors, Comcast says, have “strategically opted to file only the one Claim Objection” despite sending “hundreds of force majeure letters.”

Why does Comcast want to have the issue litigated now? If DISH Wireless wins on its force majeure objections to the Big Three’s claims, Comcast reasons, the debtors “would undoubtedly argue that such a result is binding on all creditors” – or at least persuasive. It’s a bellwether without the label.

Comcast concedes that a judgment disallowing the Big Three’s claims against the debtors would not technically bind other creditors. But here in the real world, that’s not very comforting.
“By selectively litigating these defenses against only the Tower Companies, DISH Wireless is attempting to position itself to develop a factual record on issues common to all affected creditors without their involvement,” Comcast argues, which, duh. To remedy this, Comcast suggests that it either be allowed to intervene and participate in the Big Three objections or deem the objection to the Big Three claims applicable to Comcast’s claim.

Our first reaction, as sensible long-time observers of the bankruptcy system, was of course DISH Wireless should readily agree to Comcast being added to the Big Three proceeding. After all, the debtors clearly intend to object to Comcast’s claim on force majeure grounds – why not have four claims litigated at once instead of three? Especially when cash (and thus time) is running dangerously short.

Brother, we sincerely hope you are not that naive. On Oct. 1, DISH Wireless objected to Comcast’s motion to intervene, arguing that litigating the Big Three objection would be more expensive if Comcast and other trade creditors jump in. Which is doubtless true, what with four being greater than three. But would it be more expensive than trying the Big Three objection to conclusion and then starting over against Comcast and hundreds of other similarly situated creditors? Why not try to get as many creditors as possible joined to a single adjudication on the force majeure issue?

One possible answer: because Comcast is 100% correct, and DISH Wireless is hoping to knock out hundreds of similarly situated claims using findings in the Big Three case, without all those claimants having the opportunity to fully litigate the issues and without the procedural protections of an MDL proceeding.

Look: there’s a reason why judges select bellwethers in MDL cases and not the parties. Defendants obviously want to try the cases they are most likely to win first to influence subsequent discussions, and vice versa for the plaintiffs. Having the parties fight it out before the court decides is important.

DISH Wireless does not want that to happen: arguably it wants the biggest claims tried first because, beyond the merits, Judge Lopez would have to confront the fact that not disallowing the $8 billion in claims would effectively give those claimants control over the cases. As a bankruptcy judge, you simply cannot ignore the economics of the case and the implications of your force majeure analysis for the proceedings going forward, and simply focus on the law in a vacuum.

With that in mind, DISH Wireless’ objection to Comcast’s motion to intervene is both eminently sensible from the debtors’ perspective and incredibly galling for those of us who care about creditors’ rights. In a predictable volte-face from the JPML consolidation motion, DISH Wireless now argues the trade claims don’t really have all that much in common.

“Comcast’s request to intervene is particularly inappropriate given that many of the issues Comcast seeks to litigate are based on the particular terms of its contract with the Debtors, which are not at issue in the Omnibus Claims Objection,” the debtors say. That’s the same reasoning the JPML deployed when it rejected the MDL procedure that DISH Wireless is currently trying to replicate without any plaintiff protections in bankruptcy court.

You are currently pointing out to your laptop screen that the trade creditors opposed MDL consolidation, so they are making inconsistent arguments as well. That’s true. But the trade creditors are actually litigating issues like ordinary lawsuit parties, and not trying to rely on the concept of the debtor in possession itself to get their way. The debtors’ primary argument is we’re debtors in possession, so.

“A debtor has discretion to determine whether and how to object to or otherwise resolve proofs of claims filed in its bankruptcy case,” the debtors explain, helpfully adding that deciding to object to the Big Three claims was “vital to resolving the chapter 11 cases.”

You’re going to see references to that “vital to resolving” over and over in this fight, for the reason we cited above: the strategy seems to be to convince the court this isn’t just about the merits of a force majeure argument, and that the entire case falls apart without a ruling reinforcing the debtors’ control over the case.

Hey, we admit: the debtors have a point. Maybe every chapter 11 case that turns on claims objections should work like a mini-MDL, with the bellwethers chosen based on their importance for a possible reorganization (or, as here, liquidation). If a judge decided that these three claims objections should be tried first under MDL bellwether selection standards, sure, go ahead. But that’s not what is happening here: the debtors are reserving for themselves the privilege of selecting the bellwethers, which they could not have done outside of bankruptcy.

But why should the debtors have sole authority to determine which trade claim force majeure objections get tried first? After all, unlike many provisions of the Bankruptcy Code (e.g., section 1121), section 502, which governs claims objections, does not give the debtors any exclusivity rights. As Judge Craig T. Goldblatt pointed out in a 2025 Yellow Corp. decision, section 502 explicitly gives creditors the right to object to other creditors’ claims, and the bankruptcy court must resolve all claims objections.

Maybe Comcast could get one of its creditor friends to object to its claim, as a favor, triggering the mandatory claims resolution process? Doesn’t the possibility that kind of workaround actually makes sense sorta demonstrate our point?

What makes the debtors’ claims of control over this mini-MDL more egregious is that they also want to use bankruptcy to control the buildout creditors’ nonbankruptcy litigation against nondebtor EchoStar. On July 21, DISH Wireless asked Judge Lopez to halt the buildout creditors’ claims against EchoStar while the bankruptcy proceeds, arguing – please, grab your eyes and hold on tight to prevent them from spinning out of their sockets – that litigation of those claims so overlaps with claims against the debtors that the outcome could taint the record in the bankruptcy.

Arguably, DISH Wireless wants exactly what Comcast wants: to get involved in litigation against a third party that could influence future litigation against itself, even though res judicata and collateral estoppel would not apply. We’ve dinged this argument before. We can’t recall a single instance in a mega case where creditor litigation against nondebtor codefendants was allowed to proceed during the bankruptcy, the nonbankruptcy court ruled against the debtors, the creditors asked the bankruptcy judge to adopt the other court’s findings against the debtors and the bankruptcy judge said yes. Let us know if you can.

The threat to Comcast from the Big Three objection going forward without it is considerably more real than the threat to the debtors from litigation against EchoStar going forward, especially because Comcast would have to distinguish a persuasive-but-not-binding decision against the Big Three from the same judge – Judge Lopez – rather than a persuasive-but-not-binding decision from some district judge in Colorado.

There’s another, more specific reason why we’re with Comcast on this one: as Comcast points out, determining whether the FCC forced DISH Wireless to abandon its 5G buildout (triggering the force majeure argument) or whether DISH Wireless just decided to bail on its 5G business when it found it could sell the spectrum for tens of billions to AT&T and SpaceX without paying more than $2.4 billion to compensate trade creditors (presumably not a force majeure event) could require discovery from the FCC.

As Comcast points out, the FCC probably isn’t going to be too eager to respond to hundreds of separate discovery requests for the same information in each individual trade claim objection. “This discovery from the FCC and other governmental agencies is essential to adjudicating DISH Wireless’s defenses to the claims asserted by Comcast, other 5G Network claimants and the Tower Companies, and obtaining such discovery from the federal government is inherently difficult,” Comcast notes.

The debtors’ view on adjudication of claims against the $2.4 billion FCC buildout claims trust fund also makes fair resolution of these claims more important in the instant case. In an Aug. 20 letter to the FCC, EchoStar contends that the bankruptcy court is the exclusive venue for determining the validity of claims against the trust and the debtors’ estates. If that’s true, then a ruling on the force majeure issue in the bankruptcy court could also be dispositive on claims against the trust, even though the trust is obviously not a debtor or an asset of a debtor under the bankruptcy court’s exclusive jurisdiction.

The fair solution would be for Judge Lopez to allow other buildout creditors to join the Big Three for the limited purpose of binding everyone to his determination on whether the FCC “forced” the debtors to abandon the 5G network. Then everyone could decide whether to litigate the application of that finding to their contracts and claims in particular or read the tea leaves and settle, a la MDL.

DISH Wireless warns that allowing other creditors into the Big Three objection could be unwieldy, and that may be true – but we doubt every buildout creditor would want in. Although Comcast’s claim is much smaller than the aggregate Big Three claims, it’s still $83 million – Comcast probably isn’t representative of the universe of small creditors who would remain on the sidelines. Only one other buildout creditor – Cablevision Lightpath – has sought to intervene in the Big Three objection. Cablevision Lightpath has asserted a claim for $77 million – there’s not exactly a stampede of mom-and-pop investors trying to get involved.

For its part, the official committee of unsecured creditors agrees with us – not that surprising since the Big Three sit on the committee. In a statement filed Oct. 1, the UCC, “as the fiduciary for all of the DISH Wireless Debtors’ unsecured creditors,” requests that “the Court provide all 5G Network Claimants (including Movants) an appropriate opportunity to participate in the adjudication of the Claims Objection through a reasonably tailored protocol governing issues that both are specific to the force majeure and frustration of purpose defenses and common to all 5G Network Claimants.”

But taking this route would take away control over what is ordinarily a fairly minor aspect of the bankruptcy – the order in which claims objections are resolved – and we’re guessing Judge Lopez won’t stomach that. Our money is on the judge deferring to the debtors’ “business judgment” even though, you know, they don’t have a business and allegations of conflicts have pervaded the case.

The UCC’s statement might even reinforce an inclination to protect debtor control. After all, two lone creditors seeking to intervene in a claims objection is a small matter, whereas a fiduciary trying to influence the course of a mega case in a direction the debtor in possession dislikes could be dangerous collective action by creditors – see below for Judge Alfredo R. Perez’s view on that.

Justice Douglas assembled five volumes of scholarship and data from America’s finest legal and financial minds in support of his plan to move the pendulum of control away from debtors toward creditors in the 1930s. Congress went through the usual rigmarole when it shoved the pendulum back toward debtors in 1978. You’ve got a virtually unread column by washed-up bankruptcy lawyers on a specialist trade website – a column that once ran a Die Hard-themed Christmas edition – working on pushing it back. Best of luck.

Hughes (EchoStar?) Remains in Control

Speaking of Houston complex panel judges refusing to take away an EchoStar affiliate’s control over its unfunded free-fall case: On Oct. 20, Judge Perez denied the Hughes Satellite Systems ad hoc noteholder group’s motion to terminate exclusivity, finding that the debtors’ exclusive right to file a plan within 120 days after the petition date is paramount even if a controlling group of secured creditors and the official committee of unsecured creditors are vehemently opposed to the debtors’ plan concept.

We discussed the pointlessness of exclusivity in general, and in Hughes in particular, last time around, so we won’t get too deep into those weeds. Suffice to say that under Judge Perez’s oral ruling, overwhelming creditor opposition to continuing debtor-in-possession control over the plan process is not only not dispositive on a motion to terminate exclusivity before the initial 120 days has run, it’s not even that relevant – at least until the debtors need a DIP to pay for the whole thing.

At the hearing on Oct. 15, the noteholders and UCC warned that the debtors intend to propose a plan that would keep reorganized Hughes under EchoStar control and assume the allegedly above-market J3 satellite lease with EchoStar that creditors say was intended to siphon cash out of Hughes. In his oral ruling, Judge Perez emphasized that the noteholders’ and UCC’s resistance to that plan concept – and the debtors’ inability to confirm a plan without the noteholders’ consent – is “insufficient by itself” to terminate exclusivity before the initial 120-day period has run.

In fact, the judge said, terminating exclusivity within 120 days of the petition date because creditors with overwhelming control over impaired classes declare they absolutely will not vote for the debtors’ concept would undermine the very foundations of the Code. How so? By chipping away at debtor-in-possession control.

Judge Perez explained that if creditor desires weighed on the exclusivity issue, the concept of exclusivity would be “eviscerated.” At the hearing, Judge Perez gave an example: Creditors could simply get together before the case was filed, sign an agreement binding them to oppose the debtors’ plan at all costs and secure termination of exclusivity on the first day. Jeepers! Now we know what costume to wear for trick-or-treating in Judge Perez’s neighborhood: an ad hoc group cooperation agreement.

Aggressive co-op provisions are like Beetlejuice: once you say them out loud … they materialize. So, we fully expect automatic plan opposition and support for exclusivity termination built into the latest forms.

Allowing this kind of creditor cooperation to control the exclusivity termination inquiry would effectively strike “debtor-in-possession” from the Code and replace it with “creditors-in-possession,” Judge Perez remarked. Just imagine the Lovecraftian horror of a chapter 11 case run for the benefit of an ad hoc group holding a majority of senior secured debt. Between this specter and three hours of Elizabeth Holmes’ cold, fish-eyed stare in You Can See Everything, we’re going to have nightmares for weeks.

Honestly, we’re torn. The idea that debtors have an absolute right to tell a controlling secured creditor group to pound sand delights us on an emotional level. At the same time, that’s not really what Judge Perez is saying. The judge further remarked that the strongest argument for terminating exclusivity was the threat of administrative insolvency – a direct result of the noteholders’ pledge not to provide a DIP facility or consent to use of cash collateral unless exclusivity was terminated.

(Fair play to Judge Perez: Later the same day, he nevertheless ordered the debtors to pay the noteholders $16 million in cash for a one-month cash collateral extension after debtors’ counsel touted $16 million in new, postpetition contracts without presenting any evidence.)

Judge Perez rejected this gambit, for now, concluding the debtors have enough funding to continue operating – without paying professionals or making lease payments to EchoStar on the J3 lease – until January. In other words: Judge Perez might be fine with “creditors-in-possession” if the debtors really needed a DIP loan now and the noteholders would not provide one unless the debtors dropped the EchoStar-based plan.

Let’s be real for a second: Debtor control in most cases is simply DIP lender control. What bankruptcy judges see as “debtor control enshrined in the Code” is really “secured creditor control via RSA terms and milestones” in most cases. Even if management running every aspect of a bankruptcy case free of adult supervision were a good thing, that’s not what’s going on.

But the logic of Judge Perez’s ruling seems to suggest that if there’s no DIP lenders, then debtors basically get unfettered control over the bankruptcy to screw over creditors. If there is a DIP lender, the DIP lenders get nearly unfettered control over the bankruptcy, via the debtors, to screw over trade creditors and other unlucky out-groups.

To be fair, we suspect that Judge Perez didn’t entirely think through the implications of his co-op example in the oral ruling. The judge also emphasized that this is not the end of the debate: He only denied the motion to terminate exclusivity on an interim basis, pushing further consideration to a hearing on Dec. 1 – after the original 120-day exclusivity expires on Nov. 30.

Will Judge Perez terminate exclusivity at that point? You know what’s going to happen: The debtors will file a placeholder plan two hours before the hearing, and the judge will extend exclusivity as long as the debtors have enough cash to function.

Helpfully, Judge Perez also made clear that he was not finding that the debtors can confirm an EchoStar-based plan that all the creditors hate. The fact he had to say that – that his decision not to terminate exclusivity within the original 120-day period was not a sign that he will confirm the debtors’ yet-to-be-filed plan months from now, without considering the merits – tells you something about creditor expectations these days.

Here’s our takeaway: It seems that, according to the complex panel gang, debtors have near-absolute control over their bankruptcy cases as long as they can fund said cases without help from creditors, and interfering with such control is verboten. Once the debtors need funding – be it on the first day or the 121st day – the principle of honoring debtor-in-possession control goes out the window, and the debtors are at the mercy of controlling groups.

Does that seem like what Congress had in mind when rebalancing debtor and creditor interests in 1978? At one level, who cares? Like we’ve said before, legislative intent is deader than dead. The better question: Is this the best way for insolvent companies to reorganize or liquidate? The debtors can thumb their nose at creditors as long as they don’t need a DIP right now?

Probably not. When creditor influence is based exclusively on the debtors’ need for DIP financing, then creditors who cannot or will not fund a DIP have zero influence in chapter 11, despite their rights outside of bankruptcy, their rights under the Code and the supposedly “collective” nature of the proceedings. That seems problematic to us.

The next test for Judge Perez: The noteholder group has objected to the debtors’ retention of several professionals, including proposed bankruptcy counsel White & Case (longtime EchoStar counsel, also counsel for the DISH debtors) and special board committee/conflicts counsel Kirkland & Ellis. The noteholders maintain the firms are beholden to EchoStar; the debtors say the objections are the next phase in the noteholders’ effort to seize control of the cases as creditors-in-possession. A hearing is set for Oct. 30.

Our prediction: Judge Perez approves the professionals, subject to at some point securing enough cash to pay them. He’ll make a big point of reserving final fee approval, as if that’s ever in doubt. Bravo to the professionals at White & Case and elsewhere for handling the case pro bono for now, but this sure seems like an untenable situation for an effective and efficient reorganization – even compared with the spectacle of competing plans, which isn’t nearly as scary as Billy Evans chasing ghosts and sniffling just a bit too much.

True Food for Thought

Sometimes we try to help you folks navigate the bonkers world of finance and bankruptcy, and sometimes we ask you to help us understand what the hell is going on. This item is distinctly of the latter species: We need some assistance understanding exactly what to do with the gonzo restaurant credit “loans” by inKind to the True Food Kitchen debtors.

Restaurant chain True Food was backed by Oprah and is a health-focused full-service restaurant. Think Lululemon in restaurant form: skinny margs and fusion bowls anchored by Korean glass noodles, all backed by exacting allergen protocols. None of that is cheap to execute.

The company filed in Houston on Oct. 4 to carry out a court-supervised sale process and optimize their restaurant footprint, cost structure and operations. Pretty standard restaurant/retail bankruptcy stuff. The debtors sought approval of $20 million in new-money DIP financing from the delightfully named HumanCo IV, an affiliate of a prepetition lender and equityholder of the debtors (not Oprah, or Gail or even Stedman).

But a troublesome imp was hiding in the debtors’ capital structure, in the form of inKind. On Oct. 23, inKind objected to the proposed DIP financing, arguing it was intended to give insider HumanCo control over the bankruptcy case and sale process and ensure HumanCo made off with the debtors’ assets on the cheap. Which, duh. InKind offered its own DIP, which it says is patently superior to HumanCo’s offer blah blah blah. We’ve been here before.

What’s more interesting is inKind’s alleged interest in the debtors’ assets. The objection doesn’t really spell it out, and the first day declaration simply lumps inKind together with other merchant cash advance, or MCA, lenders – the standard bogeymen in many middle-market restaurant and retail cases. So let’s find out!

A restaurant trade publication ran a story in June 2025 explaining inKind’s unique financing model. According to the article, “[r]ather than offering loans or equity deals, inKind simply buys large blocks of food and beverage credit from restaurants, up front, at a discount, and then sells that credit through its app to diners, who get rewards when they pay through the platform.”

“Let’s say a restaurant needs $100,000 to expand or smooth out operations,” the article continues. InKind “might offer that in exchange for $200,000 worth of dining credit, which it then resells through its app to consumers” for, say, $150,000, “sometimes through discounted bundles, other times by rewarding diners with bonus credit.” “It’s not a margin on the restaurants’ earnings. It’s a margin on future meals,” the article explains.

Sorry to burst finedininglovers.com’s bubble, but this isn’t a restaurant financing vehicle – it’s a law school bankruptcy exam question brought to life. We are talking about lender-issued gift cards here, each one an executory contract in bankruptcy just waiting to be rejected. The debtors have hinted that they plan to reject the agreement with inKind, according to inKind. What happens if the now-bankrupt chain simply stops honoring the credits it sold to inKind?

InKind says in its DIP objection that it has a security interest in the debtors’ assets that would be primed by the DIP, for which it is not being offered sufficient adequate protection. According to inKind, it is secured by “substantially all” of debtor FRC Balance’s assets, as evidenced by timely-filed UCC-1 financing statements. OK.

Next question: what claims are secured by those liens? If inKind’s model is buying credits from restaurants and selling them to customers, do the debtors actually owe inKind anything? What if inKind already sold the credits to customers for a profit? Theoretically, inKind has been “repaid” for its “loan” and then some, so wouldn’t customers be the ones left holding the bag if the debtors stop honoring the credits?

Alas, inKind has not sold all of the credits, because it asserts a secured claim for $9.4 million against the debtors (you won’t be surprised to learn the debtors have pegged the claim amount a few million lower). According to inKind’s objection, “FRC Balance’s refusal to honor purchased credit – or any breach it cannot cure – is an Event of Default under section 16(a) of the Credit Purchase Agreement that makes the Merchant Default Payment due to inKind: seventy cents for every dollar of purchased credit not yet sold or redeemed.”

While we don’t know the mix of unredeemed credits vs. diner/customer-purchased credits, we do know approximately $13.5 million of inKind purchased credit remained outstanding on the petition date, so the default payment would be $9.4 million.

This is certainly not your typical MCA financing arrangement or factoring deal. In those structures, the lender purchases receivables for meals already eaten – not future meals and drinks. We can’t say we’ve seen anything exactly like it, to the extent that we’re not even quite sure what theories the debtors will advance to contest the lien.

Aside from an attack on perfection or seniority, our money is on the debtors arguing the “default payment” is actually an unenforceable penalty or forfeiture – both generally disfavored under the Code – if inKind has already sold enough credits to cover the purchase price paid to the debtors, but not its full hoped-for profit on the credits. Maybe it is a make whole, which we know likely qualifies as unmatured interest that must be disallowed under section 502(b)(2) if the debtor is insolvent – assuming it’s not a valid liquidated damages claim.

Say inKind bought $200,000 worth of credits for an initial purchase price of $100,000 (the “loan” amount). Then inKind sold those credits to customers for $150,000, and $140,000 of those credits have already been used by frugal diners. Does inKind really have an enforceable breach claim against the debtors if they refuse to honor the last $10,000 postpetition? Maybe inKind’s claim is valid but limited to the amount of refunds (cash or credits) it has to pay out to customers who bought credits that were not honored?

Again, if inKind has recovered its initial “loan” amount, it’s hard to see Judge Lopez having much sympathy – especially if inKind’s opposition would, if its lien is valid, present problems for approval of the all-important DIP.

It will be interesting to see how this plays out, but for now, we’re simply admiring the creativity of this structure and hoping inKind doesn’t get wiped out so we see more of this wacky stuff in the future. Maybe they’ll extend this to other businesses, resurrecting the primordial debt-as-currency notion and making David Graeber absolutely giddy.

We just love to point out that our amazing field continues to bang out innovation after innovation far beyond what Claude can even imagine.

In the words of our very own David Zubkis, chapter 11 “is like the large hadron collider for goofy financing.” You “expose it to ‘birth of the universe’ levels of heat, and see what kind of weird exotics pop up.” The DIP motion was originally scheduled for Oct. 27 but was pushed to Nov. 2. Stay tuned.