Below is our initial take on recent bankruptcy-related developments:
Last Friday, a U.S. bankruptcy judge approved the Brazilian airline’s restructuring plan, which includes an equity rights offering as well as modified “opt-out” releases.
S&K Take: This technically happened late last week, but the decision is worth mentioning so we are dragging it into this week’s edition. Azul won confirmation of its plan from Judge Lane in the SDNY. There are two interesting aspects of that decision that jump out. The first, as the article mentions, is that United and American Airlines are going to support the plan as part of the exit equity rights offering. Mostly interesting as a name drop. The second, and probably the more important of the two for bankruptcy practitioners, is that Judge Lane approved the plan’s modified “opt-out” releases. As most folks reading this know, the Supreme Court’s Purdue decision limits what releases a plan can provide to third parties (i.e., non-debtors). That decision was recently implicated in the Gol Linhas case, where the SDNY District Court struck down opt-out releases on appeal, noting that consent couldn’t be implied from silence. Essentially non-voting creditors cannot be releasing parties (that might be an oversimplification, but we will use it for this blog’s purposes). Gol is the first district court decision rejecting opt outs (which came down about two weeks ago). Perhaps respecting that judgment, Azul revised its releases so that only creditors that voted and failed to opt out were deemed to grant third party releases. Judge Lane found that sufficient, although we will wait to see his rationale. The debtors argued that those creditors had not been silent and instead had voiced their view of the plan through their vote. Further, Judge Horan ruled this week in Walker Edison that silent creditors cannot be deemed to be releasing parties. We all knew that the “consent” issue was going to be a sticky one post-Purdue, and we are filling in the blanks more and more as we go.
A newly-formed entity representing the family that founded furniture company American Signature Inc. had made a “stalking horse” bid on the company.
S&K Take: We couldn’t find a fresh article that wasn’t paywalled, so you’ll have to trust me on this. In a “signature” moment for unsecured creditors, Judge Stickles denied requested bid procedures in part, recommending that the parties hash out an appropriate sale timeline that didn’t lock in an insider stalking horse bid. If you have been following the case, you would know that the Schottenstein family is involved. Actually, very involved. They hold an interest in the debtors (behind the Value City and American Signature furniture brands), the proposed stalking horse, act as both pre- and post-petition lenders, and own the liquidation consultant. One might venture to say that they are insiders. The debtors argued that the sale timeline was appropriate and in accordance with the debtors’ business judgment. The committee disagreed, arguing that the sale was a liquidation sale that purported to sell insider claims, which claims required investigation. Judge Stickles agreed with the committee, urging the parties to discuss an appropriate timeline which will allow for an appropriate investigation of potential claims. Judge Stickles did approve a $1.5 million expense reimbursement in favor of the stalking horse, however, giving the Schottenstein’s a small win. As of this writing, the timeline has not been released. The relevant question seems to be how quickly the committee can conduct its investigation. This is the second interesting sale-related decision in the last few weeks along with Genesis Healthcare.
The CEO received a $6.25 million bonus a month before the company filed for Chapter 7.
S&K Take: We haven’t revisited Tricolor in a while and now seems like an opportune time. The bell has tolled for former CEO Daniel Chu and COO David Goodgame. The USAO for the SDNY has filed an indictment alleging bank fraud, wire fraud, and conspiracy to commit both bank and wire fraud. Of additional interest to creditors, the indictment alleges that in August of 2025 Tricolor made a $6.25 million payment to Chu. Chu had asked the bankruptcy court just before Thanksgiving to allow him to access $15 million in D&O, to which the Chapter 7 Trustee took umbrage. The trustee has asked that the court limit that the $1.5 million per insured. That request is slated to be heard this week (Dec. 23rd). A group of securitization lenders has also launched a 2004 request against some of the warehouse lenders to try and figure out who knew what and when. A veritable smorgasbord of activity.