In a decision that once again evidences the Fifth Circuit’s strong stance on the finality of asset sales in bankruptcy absent a stay of the applicable order, on March 8, 2023 the United States District Court for the Southern District of Texas published a memorandum opinion and order affirming a bankruptcy court’s exercise of Bankruptcy Code provisions to strip subrogation rights of certain sureties (the “Sureties”) against an asset purchaser.
The Sureties appealed certain provisions in the order confirming the chapter 11 plan in In re Fieldwood LLC that authorized the sale of the debtors’ assets free and clear of the Sureties’ subrogation rights. The District Court focused its decision on (a) the Sureties’ failure to obtain a stay of the confirmation order, (b) the plan’s substantial consummation at the time of the appeal, and (c) the effect the Sureties’ requested relief would have on third parties. While the decision has been appealed to the Fifth Circuit, for now asset buyers in bankruptcy cases in the Southern District of Texas can take comfort that a free and clear sale may insulate them from potential subrogation claims of sureties post-closing.
Read more.
