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BankruptcyThe Bankruptcy StrategistFeatures

District Court Overturns Bankruptcy Court, Rejects Exclusive Rights Offering in Favor of ‘Market Test’ and ‘Equal Treatment’

By Adam H. Friedman and Dean M. Oswald
October 31, 2025

So-called “creditor on creditor violence” resulting from liability management exercises (LME) can take different forms. In some aggressive cases, certain lenders are given the opportunity to finance the borrower and gain extra value or better their positions in a restructuring, while other similar lenders are left out.

In In re ConvergeOne Holdings, Inc., No. 4:24-cv-02001 (S.D. Tex. Sept. 25, 2025), the District Court for the Southern District of Texas held that a bankruptcy plan unfairly discriminated against minority lenders who were excluded from investment opportunities that yielded higher recoveries for majority lenders. Relying on last year’s seminal Fifth Circuit decision in In re Serta Simmons Bedding, LLC, 125 F.4th 555 (5th Cir. 2024) and the Supreme Court’s decision in Bank of America National Trust & Savings Association v. 203 N. LaSalle St. Partnership, 526 U.S. 434 (1999), the court concluded such exclusions result in unequal treatment within the same creditor class.

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