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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Fifth Circuit Follows Ninth Circuit, Allows Post-Bankruptcy Contract Rate Interest In Solvent Debtor Case

By Michael L. Cook
November 01, 2022

"… [B]ecause Congress has not clearly abrogated the solvent-debtor exception," the U.S. Court of Appeals for the Fifth Circuit held that a reorganized solvent debtor had to "pay what it promised now that it is financially capable." In re Ultra Petroleum Corp., 2022 WL 8025329, *1, (5th Cir. Oct. 14, 2022) (2-1). Moreover, "given [the debtor's ] solvency, post-petition interest is to be calculated according to the agreed-upon … contractual default rate …," not the "much lower Federal Judgment Rate …," held the court. Id. This $387 million win for creditors follows the similar recent $200 million creditor victory in the Ninth Circuit. In re PG&E Corporation, 46 F. 4th 1047, 1053 (9th Cir. Aug. 29, 2022) (2-1) ("Under the long-standing 'solvent debtor' exception," unsecured creditors have "equitable right to receive post-petition interest at … contractual or default state law rate, subject to any other equitable consideration; "because of limited" record, case remanded to bankruptcy court with "presumption" of "contractual or default post-petition interest.")

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"No circuit court [had] addressed the issue [i.e. rate of post-petition interest to unimpaired unsecured creditors], and bankruptcy courts have reached different conclusions in the rare solvent debtor case," noted the Ninth Circuit on August 29, 2002, in the PG&E case, 46 F. 4th at 1052, a decision not mentioned by the Fifth Circuit in Ultra. And "this is not the ordinary case," said the Fifth Circuit. 22 WL 8025329, at *8. Some lower courts, for example, had held that post-petition interest should be calculated at the lower federal judgment rate, not the contractual default rate. In re the Hertz Corp, 647 B.R. 781, 800-01 (Bankr. D. Del. 2021). See, also, In re Energy Future Holdings Corp., 540 B.R. 109, 124 (Bankr. D. Del. 2015) (interest based on "equitable principles" at rate court "deems appropriate.")

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