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Bankruptcy Litigation

Changing Outcomes Through a Reservation of Rights

In the day-to-day practice of bankruptcy law, it may occasionally be tempting to dismiss “reservation of rights” language as unnecessary or unimportant — after all, a pragmatically minded court will consider the economic reality of the case before it. Right? Well, the U.S. District Court for the District of Delaware’s recent ruling in Emerald Capital Advisors v. Victory Park Capital Advisors (In re KII Liquidating) demonstrates the flaws in that way of thinking.

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In the day-to-day practice of bankruptcy law, it may occasionally be tempting to dismiss “reservation of rights” language as unnecessary or unimportant — after all, a pragmatically minded court will consider the economic reality of the case before it, placing greater importance on the overall transaction at hand. Right? Well, the U.S. District Court for the District of Delaware’s recent ruling in Emerald Capital Advisors v. Victory Park Capital Advisors (In re KII Liquidating), No. 18-1081-LPS, 2019 U.S. Dist. LEXIS 168308 (D. Del. Sep. 30, 2019) demonstrates the flaws in that way of thinking. Indeed, the KII ruling shows the tremendous impact that reserving one’s rights can have on the outcome of major bankruptcy transactions and serves as a cautionary tale to those who would overlook the importance of precision drafting.

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