Court Opinion Review: The EchoStar Triple Play, Trinseo Trial Predictions, Another Chapter 15 Doozy From the SDNY and First Brands Now in Chapter 7

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 EchoStar’s DISH DBS/DISH Wireless and Hughes Satellite mess, the Trinseo/CastleKnight trial, another chapter 15 frontier in Grupo Antolin, and First Brands gets sent to chapter 7.

Kessler Syndrome

ONE chapter 11 … TWO chapter 11s … THREE chapter 11s, AH-AH-AH! Meet EchoStar, the satellite company that just can’t get enough of the Houston Complex Panel. This company and chapter 11 impresario CEO Charlie Ergen have so much bankruptcy action going on they are well on their way to Concierge Key status at the Houston Complex Panel frequent flyer lounge.

To be fair, EchoStar technically only has two chapter 11s on the burner right now, though we wouldn’t bet on it staying that way. On June 30, the company filed a bankruptcy slop bowl in Houston with a little bit of 1990s-throwback pay TV service and a little bit of three-quarters-built national 5G network tossed in together, hoping two flavors would be better – or, more importantly, faster – than just one. Then, on Aug. 2 Hughes filed a separate free-fall. Let’s dig in.

First, the DISH. We discussed the DISH DBS/DISH Wireless “prepack in name only,” or PINO, last time, and it hasn’t gotten any more “prepackaged” than it was a month ago. The big problem for the satellite-TV/erstwhile 5G combo platter remains more than $8 billion in claims asserted against DISH Wireless by three cell tower lessors understandably unhappy with their proposed 1% to 2% recovery under the plan.

The debtors’ original strategy was to reduce the tower lessors’ claims using the lease rejection damages cap in section 502(b)(6) of the Bankruptcy Code and classify them in the same class as an $8.8 billion intercompany claim against DISH Wireless held by a trust for the benefit of more than 1,200 DISH DBS noteholders. The amount of the intercompany claim and the number of individual noteholders that would be allowed to vote it would swamp the rejecting votes of the tower claimants, guaranteeing the class accepted the plan.

There’s just two little problems with this scheme. First, the intercompany claim is based on alleged “loans” to DISH Wireless to fund its now-abandoned Boost Mobile 5G buildout that were not actually documented as “loans” at the time they were made. The debtors waited until August 2025 to put together some “loan documents” evidencing that these were loans and not equity contributions to DISH Wireless by other EchoStar entities.

Second, the intercompany claim is held by a trust for the benefit of DISH DBS noteholders rather than the noteholders themselves – meaning that, as the tower lessors point out, the claim should only be voted once. If so, that means a majority of the class by number of creditors would not accept the plan, and the debtors need both two-thirds of the class by amount and a majority by number to accept.

The debtors, like Octus, must have known from the beginning that these issues would arise. However, they probably did not expect – based on the fact that they filed in Houston – that the bankruptcy court would resist setting a quickie schedule to get these issues resolved before the Oct. 28 confirmation milestone in the DISH DBS debtors’ restructuring support agreement.

The debtors probably figured the complex panel would put the case on the rocket docket to beat that milestone because the debtors filed the cases together – otherwise, there is no reason at all to accelerate the liquidating case of the DISH Wireless debtors. DISH Wireless has ceased operations and transferred away the Boost Mobile business, so the debtors couldn’t rely on the usual pleas of “do it for the employees” that inexplicably seem to carry weight in reorganizing cases.

To get the DISH DBS noteholders to go along with a joint case even though everyone knew DISH Wireless would entail some bloody knuckles, the debtors offered them some goodies: the possibility of an extra penny or two recovery from DISH Wireless on that intercompany claim and, more substantially, a recovery on the intercompany claim from the $2.4 billion Federal Communications Commission DISH Wireless trade creditor trust.

The trust exists because the FCC forced EchoStar to fund the trust with $2.4 billion from the proceeds of the sales of its wireless mobile 5G spectrum to AT&T and SpaceX as a condition for approving the sales (and not seizing the spectrum back for EchoStar’s failure to meet 5G network buildout requirements).

The FCC intended for the trust “to help pay obligations potentially incurred in connection with the construction, operation, maintenance, building, decommissioning, and/or provisioning of goods or services related to or arising out of the communications sites and/or communications network associated with certain of the licenses being assigned or transferred in this transaction.” Sounds like trade creditors, no? Hold that thought.

Alas: Judge Christopher Lopez just wouldn’t set the confirmation hearing on the prepackaged plan fast enough. At the July 1 first day hearing, Judge Lopez refused to approve the debtors’ disclosure statement and proposed confirmation timeline, which culminated in an Aug. 17 confirmation hearing. On July 8, Judge Lopez kicked the hearing on the confirmation timeline down the road again, to July 23.

The judge also refused to quickly approve the DISH Wireless debtors’ bidding procedures for a potential sale of their remaining assets – basically, claims against EchoStar – to EchoStar. Hmm, wonder why EchoStar wants to buy claims against itself? Can’t possibly be to toss them in the dumpster, right?

Delaying the sale process meant delaying the “market test” sale valuation the debtors no doubt intended to rely on at confirmation when the trade creditors insisted the claims against EchoStar should be valued in the billions – and opened the door to a motion for standing to bring those claims by the official committee of unsecured creditors.

At the July 23 hearing, Judge Lopez finally indicated he would approve the DISH disclosure statement and solicitation materials but rejected the debtors’ proposed Sept. 14 confirmation hearing, suggesting Oct. 6 would be more appropriate. Suddenly the debtors were out of position by almost two months, with an Oct. 28 confirmation milestone looming for the DISH DBS debtors.

And as of press time, the debtors still don’t have an order approving their disclosure statement, an order approving the bid procedures or a court-blessed confirmation hearing date.

Even worse, on July 30, in response to requests from wireless industry trade groups, the FCC knocked out the biggest possible source of extra recovery for the DISH DBS noteholders from the DISH Wireless side of the house: the $2.4 billion FCC trust for DISH Wireless trade creditors discussed above.

The “prepackaged” plan proposed that the trust holding the intercompany claim would file a claim against the FCC trust. If that claim were allowed at anywhere near the claimed amount, it would have eaten up much of the FCC trust fund, screwing DISH Wireless trade creditors whom the trust fund sure seemed designed to protect out of a potential supplement to that 1% to 2% bankruptcy distribution. Effectively, much of the FCC trust would have gone to DISH DBS noteholders – with EchoStar getting the residuary.

Remember, the FCC forced EchoStar to fund the trust from the AT&T spectrum sale proceeds as a condition for approving the AT&T and SpaceX spectrum sales. Basically, the intercompany claim would have been used to round-trip that money back to EchoStar, or at least to noteholders who would continue to have claims against the reorganized DISH entities owned by EchoStar. Gotta admit, we admire the chutzpah.

Now, though? Not so much. The FCC made clear that the trade creditor trust fund is for, well, trade creditors and forbade any affiliate of EchoStar or its assignee from asserting a claim. Sorry, Charlie. Well, seemed like a longshot anyway – time to get that DS approved, send out the ballots and get hearings scheduled on the debtors’ motion to reduce the tower claims for voting purposes, the tower claimants’ objections to the intercompany claim, the UCC’s new request for derivative standing to sue EchoStar and the proposed EchoStar credit bid.

One bright spot, though: On Aug. 10, the tower lessors stipulated to allowance of their claims for voting purposes at the section 502(b)(6) lease rejection damages cap, after realizing that the amount of their votes really wouldn’t matter if that intercompany claim is not allowed or entitled to vote 1,200 times. Finally, progress.

Except: On Aug. 11, the very next day, the debtors elected to take that W and eat it by asserting objections to the tower claims on the merits and asking for a hearing on the objections in mid-September, before confirmation of the plan. Basically, the debtors scrapped a lot of their original strategy and pinned their hopes for a quick, combined DISH DBS/DISH Wireless confirmation on an extremely rapid merits ruling on the application of section 502(b)(6) to the tower claims.

Why? According to the debtors, that July 30 FCC decision changed the trajectory of the case completely: If the intercompany claim can’t recover from the FCC trust fund, then all $2.4 billion is available for DISH Wireless trade creditors, meaning all they need to do is reduce the allowed amount of DISH Wireless trade claims to less than $2.4 billion to have a consensual, full-pay plan for both silos. Eureka!

It’s almost as if this was an anticipated fallback in the event the FCC decision went the way it did … or a very nice piece of bankruptcy jiujitsu responding to the unexpected.

Just one small problem: The merits objection was filed on Aug. 11, meaning that if the debtors wanted to get the plan confirmed before the Oct. 28 RSA milestone they needed to litigate the application of the section 502(b)(6) cap to the big tower claims – and tens of thousands of leases, under the laws of every state – in just over a month.

Naturally, the tower creditors objected to such a compressed schedule and to the notion that reduction of their claims under section 502(b)(6) would also reduce their claims against the FCC fund, considering that the fund is not property of the bankruptcy estate. That issue is in the hands of the FCC, giving the commission yet another opportunity to blow up the debtors’ strategy.

More importantly, Judge Lopez seemed uneasy with such a compressed schedule. At a hearing later in the day on Aug. 11, he sent the parties back to the hallway to discuss a schedule for litigating the tower claim objections, the intercompany claim, the UCC’s derivative standing motion, the sale to EchoStar and, if they could fit it in, the EchoStar DIP. “I cannot schedule something the parties haven’t had adequate time to read,” the judge explained.

Unsurprisingly, the parties were unable to come to an agreement, and Judge Lopez reconvened the bickerers on Aug. 18 for oral argument on an appropriate schedule. The debtors pushed for a confirmation hearing on Nov. 12, with a hearing on the claim objections to be held Oct. 13 – the now-modibund confirmation hearing date agreed before the FCC decision changed everything. The tower claimants coalesced around lessor Crown Castle’s proposal for a hearing on the claims objections in early December, with confirmation presumably to follow.

Counsel for the ad hoc group of DISH DBS noteholders kindly reminded everyone of that Oct. 28 DISH DBS confirmation milestone, which the debtors seemed to have memory-holed in the same out-of-the-way brain cells as the EchoStar DIP.

Judge Lopez took the scheduling scrum under advisement, and on Aug. 19 delivered another blow to the combined DISH DBS/DISH Wireless strategy by advising the debtors that if they wanted the claims objections decided before confirmation, confirmation would have to be held in early December. Either way, the judge said, there would be no way to hold the confirmation hearing until mid-November at the earliest. The debtors would also have to propose another form of their disclosure statement to reflect their change in strategy.

Counsel for the DISH DBS noteholder group again reminded everyone that the RSA deadline for confirmation of a DISH DBS plan is Oct. 28, and went a step further by suggesting, gently, that maybe, just maybe, now is the time to sever the no-brainer DISH DBS reorganization from the galaxy-brained DISH Wireless liquidation.

A humble suggestion: Perhaps the DISH Wireless cases could be split from DISH DBS and grafted on to the similarly troublesome Hughes Satellite freefall? After all, the same firm represents all three debtors, so getting counsel up to speed won’t be a challenge. And compared with Hughes, DISH Wireless looks as buttoned-up as DISH DBS.

To be fair, Hughes also looks like the majority of chapter 11 cases filed back when those DISH Man commercials were airing (linked HERE for those of you not clicking on everything above). Back in our day, we didn’t have to read War and Peace-length RSAs and phony prepackaged plans on the first day cases were filed, and we certainly didn’t have Octus’ Credit AI or the ever-expanding MCP helping us walk to school uphill through the snow, barefoot.

We caught an actual, physical plane to Philadelphia (without Wi-Fi!), took a Yellow Taxi, burned a heater on the porch, walked into court and made it up on the spot, right along with the debtors, before getting dinner sales-tax free. Those were the days, nobody reading a disclosure statement on their phones, everybody just living in the moment.

Anywho, Hughes is a real throwback. The consumer satellite internet service provider saw its subscriber base drop precipitously thanks to low-Earth orbit competitors such as SpaceX, and now seeks to shed debt and pivot to enterprise and governmental customers. How? Chapter 11, basically. The company’s noteholders, like the DISH UCC, would prefer Hughes pivot to immediately suing EchoStar for allegedly draining cash out of the Hughes business to plug holes elsewhere in the enterprise – see above.

According to the group’s motion to appoint an examiner to look into the transactions, “independent” directors Anthony Horton and Michael Buenzow each understand they “will not have any future employment opportunities” if they take action “contrary to the wishes of the parties responsible for appointing them” – here, presumably, Ergen and counsel for the various EchoStar entities.

(Get that, retired CFOs and management consultants? Cross Charlie, and you’ll never eat lunch in this town again! Fortunately, there are plenty of “independent” investigation opportunities everywhere nowadays. But we digress.)

Most interestingly, the Hughes noteholders suggest that counsel for Hughes – again, also counsel for DISH DBS and DISH Wireless – conveniently forgot to carve Hughes’ potential claims against EchoStar and Ergen out of the nondebtor releases in the DISH prepack plan.

According to the noteholder group, the DISH plan originally “included Hughes as a ‘Releasing Party,’ which would have released all of Hughes’s claims against EchoStar and its affiliates without any consideration to Hughes and without Hughes’s consent.” The noteholders stepped in and pulled Hughes from the releases – but they shouldn’t have had to, according to the motion.

On Aug. 24, the UST joined the Hughes noteholders’ examiner motion and focused more specifically on the role of counsel for the debtors in the DISH cases. According to the UST, in both the Hughes and DISH bankruptcy cases “parties have asserted that EchoStar directed several unusual transactions within the two years preceding the bankruptcy filings.” The UST hints that counsel may have represented EchoStar in these transactions and “continues to represent EchoStar in ongoing matters,” requiring an independent investigation into potential conflicts.

In their Aug. 25 response to the examiner motion, the debtors argue that another investigation on top of the independent directors’ inquiry and an inevitable review by the newly appointed official committee of unsecured creditors would be “unnecessary and duplicative” and “impose wasteful costs” upon the estates. The directors also insist the ad hoc noteholders’ “aggressive litigation strategy” is designed “to wrest control of these Chapter 11 Cases from estate fiduciaries.” Straight from the form bank: Not wrong – just not very interesting.

The UST’s suggestion that counsel is conflicted is “irrelevant” to the examiner question and will be addressed through the retention process, the debtors add. OK.

In a reply filed this morning, the noteholder group calls the independent directors’ investigation “embryonic” and again argues that the mere presence of Ergen in particular compromises the independence of the independent directors, pointing to a 2014 scolding Ergen received from former judge Shelley Chapman in the LightSquared case. Ahhh, you can go home again.

According to the noteholders, “an Ergen-controlled special committee” cannot “be trusted to investigate Ergen-directed transactions.” The noteholder group also cites other cases wherein “independent” directors’ investigations were criticized, including, of course, a 2016 oral ruling in Caesars Entertainment. That’s the stuff.

Fortunately for Judge Lopez, the Hughes case was assigned to Judge Alfredo R. Perez down the hall. On Aug. 4, Judge Perez granted the debtors authority to use cash collateral for four weeks after a brief fight over adequate protection. That’s running out just about now, with the examiner motion set for today at 2 p.m. ET. We don’t think appointment of an examiner (table stakes these days) would mean much in a case that is set to run for a long time, at corresponding expense – but the hearing could be interesting.

After further consideration, we take it back: The obvious solution is not to split DISH Wireless from DISH DBS and throw the latter in the stew with Hughes but to combine all three cases. Seems like the perfect time to glom the bankrupt EchoStar businesses together like some kind of rickety Temu Bankruptcy Voltron cobbled together to pursue scorched-earth litigation. At the very least they’d probably save money on a joint EchoStar examiner.

Trinseo Trial Ends

At first glance, the Trinseo PINO seems to have a lot in common with the DISH imbroglio – both cases even feature the use of a disputed intercompany claim to gerrymander an accepting class! Big difference though: We now have facts in Trinseo after a three-day confirmation trial, and those facts do not look good for CastleKnight, the excluded Trinseo OpCo lender leading a minority group challenging the plan, and the company’s 2023 and 2025 refinancing transactions.

Major caveat here: If you want proof of the worth of our predictions, see the last section below, with a whole lot of First Brands crow-eating.

Last time around, we discussed Trinseo’s scorched-earth attacks on CastleKnight’s scorched-earth litigation strategy, warning that maybe disregarding CastleKnight’s votes solely because it assembled a blocking position after the transactions so it could litigate confirmation would set a dangerous precedent for the secondary market. Fortunately, Judge Lopez – we need to clone this guy so he can handle all these cases – seems hesitant to create such precedent.

Overt, unalloyed praise for Judge Lopez? It’s been building in this column slowly, but our editor is now at the dentist getting his jaw reconstructed after it dropped to the floor.

During closing arguments on Aug. 19, counsel for the debtors argued that Judge Lopez should grant the debtors’ and controlling Super HoldCo lenders’ motions to disregard CastleKnight’s votes on the plan because CastleKnight purchased loans and built a blocking position to “extract value beyond the economic realities of the case.” The judge asked counsel if building a blocking position would be the “new standard” for disregarding minority votes, suggesting that the existing standard for designation of votes under section 1126 doesn’t apply.

Pro tip for you young lawyers: It’s never good for your argument when a judge that constantly reminds everyone he is a “strict textualist” asks if you are advocating for a “new standard.”

That said: Boy, do the facts as evidenced at trial look bad for the minority group’s challenges to the prepetition liability management exercises. First, debtors’ counsel presented evidence that of the $272 million or so in OpCo loans held by CastleKnight, approximately $204 million (about 75% of CastleKnight’s holdings and 69% of the minority group’s holdings) came from lenders that affirmatively released their claims to challenge the transactions.

We criticized the argument that a plaintiff who purchases loans after a questionable transaction cannot bring claims to avoid the transaction, but it’s a little different when the sellers actually released those claims before the plaintiff bought their loans. Yeah, CastleKnight stepped into the shoes of the selling lenders, but those shoes already had a pile of dog doo in the treads, and you can’t wipe that off and walk into court without folks looking like they just caught a whiff of something foul.

Counsel for the minority group countered that CastleKnight only purchased sellers’ interests in the loans and not the releases, but that’s pretty tepid stuff. Debtors’ counsel logically pointed out that “stands in the shoes” means “stands in the shoes,” period – which seems fair, in our view.

Second, the debtors scored some solid points on the merits of the minority group’s challenges to the 2023 “triple-dip” LME that subordinated the OpCo lenders to the Super HoldCo lenders. Unlike other, successful LME challenges, the debtors had ample restricted investment basket capacity to drop down their valuable AmSty business into the new triple-dip unrestricted subsidiary, debtors’ counsel asserted – and minority group counsel didn’t bother to refute that.

Instead, minority group counsel argued the debtors breached the credit agreement’s fixed charge coverage ratio, or FCCR, by dropping AmSty down into an unrestricted subsidiary in September 2023. One little problem with that: The FCCR test applies to the act of designating an unrestricted subsidiary, and the drop-down unsub was actually designated in July 2023, not September 2023. At the time of the designation in July, the debtors obviously passed the FCCR test because AmSty had not been dropped down yet.

To address this, minority group counsel argued that the credit agreement mandates that multiple “simultaneous” transactions be “contractually collapsed” for FCCR test purposes, and the September drop-down happened “simultaneously” with the July unsub designation.

“The Debtors knew that they had no hope” of satisfying the FCCR test “if the creation of the AmSty Unsubs and the transfer of AmSty into those subsidiaries were treated as a single transaction,” the group argued in its complaint, so the debtors “attempted to circumvent the restrictions by making the one, integrated AmSty Dropdown appear as two independent steps” that must be treated as having occurred at the same time.

That seems to stretch the ordinary meaning of the term “simultaneously” just a little bit, as counsel for the debtors pointed out.

As you know, we are major advocates of applying the notion of “reality” to bankruptcy proceedings. Obviously, the company had the September drop-down in mind when it designated the unsub in July – as minority group counsel pointed out, the company already had a term sheet with the Super HoldCo group for the drop-down/triple-dip at that point, and none of the other proposals they were considering featured a similar structure.

But was the company committed to the transaction in July or was it, as the debtors’ witnesses insisted, merely preserving optionality? Well, as the debtors pointed out, the unsub designation and the drop-down were a whole heckuva lot more distant from each other than the “domino transaction” steps that Judge Marvin Isgur nuked in Incora/Wesco, even putting aside that Judge Isgur’s decision was summarily reversed by a district judge.

In Wesco, Judge Isgur’s hook for “contractually collapsing” the different stages of a complex LME transaction was language in the credit agreement requiring vote-counting at all steps in a transaction that “had the effect of” stripping liens. In Trinseo, the contractual collapsing hook is language in the credit agreement requiring the FCCR analysis at all steps in a transaction that occurred “simultaneously.” There’s a pretty big difference between the language of those provisions – enough to blame it all on the drafters. Sorry, kids.

For those keeping score where we might be walking into more crow-eating, this is the place. The collapsing “doctrine” is all over the place, and judges seem to have carte blanche to invoke it or disregard it, at their pleasure.

Finally, the minority group’s effort to tar the intercompany claim held by the Super HoldCo debtors against the OpCo debtors as manufactured and recharacterize it as equity fell well short of what we anticipate the DISH Wireless challengers can come up with. Unlike the DISH Wireless intercompany loan, the Trinseo intercompany loan was documented as such at the time it was created, and it does seem to have been legitimately used to cash out near-term maturities of the OpCo debtors.

Sure, the intercompany loan ended up increasing the OpCo debtors’ debt burden and interest costs, but it’s not exactly unheard-of for distressed companies to pay a price for pushing a maturity wall. The minority group’s challenge to the intercompany loan really amounted to an assertion that the loan was a bad idea because the company was already doomed, but bankruptcy courts are notoriously reluctant to punish management for bad ideas that prolong the inevitable and deepen a company’s insolvency.

Put together, that’s probably enough for Judge Lopez to avoid having to make a difficult decision on disregarding CastleKnight’s votes, reject CastleKnight’s challenges to the transactions and confirm the plan. After all, as Trinseo keeps pointing out: There are employees here (none of whom will be guaranteed employment after the restructuring, you know the drill).

The one issue where we felt the minority group might have the better of the case was its section 1123(a)(4) unequal treatment/ConvergeOne argument. The minority group pointed out that the OpCo lenders who joined the RSA and voted to accept the plan were receiving considerable goodies not available to those who objected, including the usual bogus backstop giveaways and a $23.7 million cash “gift” from the Super HoldCo lenders.

That seems pretty on-point with ConvergeOne, wherein the Houston district court concluded that backstop goodies cannot be offered to some but not all similarly situated lenders, at least without a market test. There was no market test of the value of the consenting OpCo lenders’ backstop participation in Trinseo, because that would’ve defeated the whole point of the maneuver: ensuring CastleKnight could not outbid the consenting OpCo lenders.

This time debtors’ counsel had to come up with the weak-sauce position, arguing that letting parties that will object to a plan participate in a plan backstop makes no sense. Well, the district court seemed to think that made sense in ConvergeOne, at least if you’re not going to take the backstop to the market.

That said, we expect Judge Lopez to continue trying to water down the section 1123(a)(4) strict scrutiny analysis handed down by the Fifth Circuit in Serta, which underpinned ConvergeOne – see, e.g., Judge Perez’s halfhearted workaround in QVC and Judge Karen Owens’ WOM hand-wave.

Maybe Judge Lopez distinguishes ConvergeOne on the grounds that in that case the excluded creditors didn’t sue to blow up the company’s entire capital structure after buying a bunch of loans that had released those claims? Not sure how that fits with the district court decision, but Judge Lopez is not going to be any friendlier to ConvergeOne than Judge Perez in QVC.

Judge Lopez took the whole thing under advisement after closing arguments and suggested he might have to push out opinions on individual issues rather than addressing all of the disputes in one order. Yeesh. Our money is on confirmation without caveats – on Kalshi we can parlay that prediction with the Hughes examiner motion being granted, right?

I Have the Power!

Check out the latest effort to stretch the bounds of bankruptcy jurisdiction and chapter 15 – this time in the Grupo Antolin case, which is pending in the Southern District of New York. For those of you new to bankruptcy’s Euro Summer, the SDNY is the Houston Complex Panel of ancillary insolvency proceedings. On today’s episode: An SDNY bankruptcy judge claims the power to turn liabilities into assets and a U.K. tribunal into Miami-Dade County small claims court. In unrelated news: It turns out alchemy is real but really expensive.

Grupo Antolin, an automotive supplier, filed chapter 15 in New York on July 20, ostensibly to procure U.S. recognition for its Spanish main insolvency proceeding and halt creditors’ efforts to exercise remedies on its U.S. assets. However, the chapter 15 seems to have been filed at least in part to also halt bondholders’ July 14 suit in the U.K. contesting the proposed Spanish restructuring, which the bondholders say should have been filed in the U.K.

According to the noteholders’ U.K. suit, by pursuing the Spanish restructuring, the lenders and the company breached an intercreditor agreement governed by English law. The noteholders seek declarations from the English High Court that “senior creditors are prohibited under clause 3.4 of the ICA from accepting any benefit generated from the new security and guarantees” under the Spanish plan, any modifications to the ICA by the Spanish court are “void and ineffective,” and any notes issued under the Spanish plan will remain “senior liabilities.”

So we have a Spanish proceeding, a U.K. proceeding to stop the Spanish proceeding and a U.S. proceeding to stop the U.K. proceeding to stop the Spanish proceeding. Eat your heart out, L’Auberge Espagnole. Not sure this is what the framers of chapter 15 had in mind when they decided to encourage cross-border insolvency coordination, but, hey, nobody cares about legislative intent anymore anyway.

On July 21, one day after the petition date but before the first day hearing (and before any stay was imposed, because this is chapter 15 and the stay is not automatic), the noteholders filed a winding-up petition against some of the debtors in the U.K.

On July 22, Judge Shireen A. Barday granted the debtors’ immediate request for a preliminary stay of all collection actions related to U.S. assets over an objection from the U.S. Trustee to the scope of the stay going beyond the original Spanish stay order. The UST warned that although it generally has not raised these objections in the past, going forward, it will object to broader provisional stay relief in chapter 15 cases, presumably out of boredom from the lack of chapter 11 cases in Bowling Green. Don’t threaten us with a good time.

After the first day provisional relief order staying actions against the debtors’ U.S. property was entered, the debtors filed a motion to halt the U.K. proceedings (both the suit to halt the Spanish proceedings and the new winding-up proceedings). According to the foreign representative, the ad hoc group is “a classic holdout employing every tactic” to “stand in the way” of the restructuring process and taking “illegal actions” against the debtors’ U.S. property, blah blah blah. See Trinseo, infra.

Here’s the thing: The bondholders filed their U.K. suit to stop the Spanish proceeding in the U.K. That is not the U.S., and the proceeding would not result in any effort to attach on U.S. assets located in the U.S. for some time, if ever. More importantly, wouldn’t the U.K. or Spanish courts be the right place to take that complaint? What authority does a U.S. court – a non-Article III U.S. bankruptcy court, no less – have to stop a U.K. proceeding related to a Spanish restructuring, you might ask. You must be new here!

Of course the noteholders pointed out the dubiousness of the U.K. stay request in an objection and at the July 31 hearing on the motion. According to counsel for the ad hoc group, the debtors were asking Judge Barday to “extend your reach to every jurisdiction on earth and to halt English court proceedings,” which no other bankruptcy court has ever done in a chapter 15 ancillary proceeding.

If the debtors had wanted to halt the U.K. proceedings, noteholders’ counsel helpfully suggested, they could have filed a chapter 11, in which case the automatic stay would extend worldwide – a well-established proposition, even if a glaring example of U.S. bankruptcy overreach.

Nevertheless, this being a chapter 15 case in the Southern District of New York, Judge Barday granted the debtors’ request. What was the hook? “I do believe that the initial provisional relief order,” the one she entered on July 22, “did prohibit foreign action against property in the U.S.,” the judge explained.

Which – what? Section 1528 provides that the effect of a chapter 15 is limited to “assets of the debtor that are within the territorial jurisdiction of the United States.” Where are the “assets” in the U.S. here? The debtors argued that the U.K. action affected the notes themselves, which are governed by New York law and thus assets of the debtors in the U.S. covered by chapter 15. But how are the notes assets of the debtors? Notes are liabilities.

Of course nonbankruptcy-court intercreditor agreement enforcement is almost always halted in chapter 11 (the debtor is a party to the agreement, the decision may affect administration of the estate … blah, blah). But note that the chapter 15 extraterritoriality limitation in section 1528 is narrower than the near limitless definition of “property of the estate” in section 541. Section 541 provides that property of a chapter 11 estate includes “all legal or equitable interests of the debtor in property.” Doesn’t the use of the word “asset” in section 1528, but not section 541, suggest the bounds of section 1528 are tighter than those applicable in a chapter 11?

Because debt documents governed by U.S. law are somehow U.S. assets of a foreign debtor subject to a preliminary chapter 15 stay order, Judge Barday concluded she has the ability to halt suits related to the debt in foreign jurisdictions. To be fair, Judge Barday did say “there is a question whether these indentures are property subject to U.S. jurisdiction” and scheduled a further evidentiary hearing on Aug. 19. However, we can’t remember the last time we saw a U.S. bankruptcy judge reconsider and lift a “temporary” stay weeks later.

Not to mention: Isn’t it the debtors’ burden to show something is an “asset of the debtor” to secure an injunction halting a proceeding that may affect it? Certainly there was no evidence establishing that the U.K. court is powerless to protect itself from a bogus suit without help from New York – U.S. courts have long recognized U.K. insolvency proceedings under chapter 15. They’re big boys.

We cannot stress just how far this stretches the concept of an “ancillary insolvency proceeding.”

Say you are a U.S. corporation with a business in Spain. You have some upcoming U.S.-law governed maturities, plus a big pile of tort claims that you’d love to get rid of without having to go through those pesky jury trials. Why not have the Spanish office guarantee the U.S. debt and indemnify the parent for the tort claims, file a Spanish insolvency proceeding, file an ancillary proceeding under chapter 15 seeking a chapter 11-style stay on collection efforts and tort litigation everywhere?

After all, the U.S. law debt and U.S. tort claims (defenses? counterclaims? whatever) are apparently U.S. assets, which need to be protected while the guarantor’s Spanish case proceeds. Under the Grupo Antolin rule, you’d be entitled to that worldwide stay. The collection efforts and tort claims halt. Then, you just drag out the Spanish proceeding for as long as possible, while the rest of the company continues to do business as usual – Texas two-step-style.

At the very least, you’re getting a free break from paying interest on the debt and the attorneys fees for defending those tort claims. Best case, you get Spanish approval for your guarantor’s restructuring and ask the chapter 15 court to approve the Spanish plan, plus, under Judge Martin Glenn’s aggressive Odebrecht decision, a nonconsensual release of all debt and tort claims against nondebtors.

Boom: You’ve gotten all the benefits of chapter 11 and more without any of the burdens – every debtors’ attorney’s dream scenario.

Why would any company with U.S. debt and foreign operations that can’t get its creditors to agree to a deal not do this? Sure, there’s the center of main interest obstacle requiring that a company file its main proceeding where it is actually based, but the SDNY gang has found ways around that, and we wouldn’t count on them to crack down on venue-shopping when every other big bankruptcy court is down for it.

At the very least, U.S. bankruptcy courts should not be issuing orders in ancillary chapter 15 proceedings requiring the cessation of foreign proceedings. The bedrock fundamental principle underlying chapter 15 is comity, and this is … kinda the opposite?

Of course, U.S. courts are not the only jurisdiction grabbers pretending to be friends at the Insol afterparty. The English courts apply the Rule in Gibbs to mean that a debt governed by English law cannot be wiped out or altered by a foreign bankruptcy court and can only be discharged under English law. Convenient for sure.

And with respect to Grupo Antonin, the SDNY gang will argue that the proof of the pudding is in the eating: The end result of bankruptcy judges’ overreach is always The Deal, and, here, Judge Barday’s ruling seems to have cajoled the parties into further discussions. On Aug. 14, the parties reached a standstill agreement to pursue further talks, kicking the Aug. 19 recognition hearing down the road. See? The system works. Reminder: italics means irony.

The End of the Dream

Octus’ Americas Court Opinion Review on First Brands, Nov. 10, 2025: “[U]nlike the folks on Twitter, we have every confidence that they will be able to find enough assets and recover enough transfers to make a meaningful distribution. This is what we do best on this side of the pond. This upstart nation that shocked the world at Ticonderoga was founded by debtors.”

About that: on Aug. 24, Judge Lopez denied confirmation of the First Brands debtors’ Hopes and Prayers plan of reorganization and sent the debtors to chapter 7, concluding that “the current plan can’t be tweaked to provide a viable path.”

Maybe there will still be a “meaningful distribution,” in a monetary sense. But there will be no “meaningful distribution” of good cheer in the offices of big chapter 11 lawyers. We live in diminished times.

We used to be a country! What happened to the indomitable spirit of bankruptcy innovation that gave us yearslong post-confirmation, pre-effective-date purgatories for administrative trade creditors (and bonanzas for the lawyers) such as Sears and Steward Health? We don’t know about you, but we remember when the testimony of a Respected Bankruptcy Advisor that We’ll Get Those Priority Claims Paid Someday, Somehow used to be enough to confirm a plan in a mega-case chapter 11 venue.

Judge Lopez acknowledged that putative First Brands liquidating trustee Marc Kirschner has “more than 50 years” of experience from some of the largest fraud and restructuring cases “in history.” Not enough, in 2026: According to the judge, Kirschner relied on material given to him by the debtors, did not analyze defenses available to litigation defendants and took no position on whether the federal government would claim funds from the trust’s litigation targets, yadda yadda. We’re out here picking nits like the Tax Guys.

Where have you gone, former judge Robert Drain? Our profession turns its lonely eyes to you.