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In its recent opinion arising out of the Orexigen Therapeutics Inc. bankruptcy case, the US Court of Appeals for the Third Circuit affirmed that while a creditor retains its direct setoff rights against a debtor under Section 553 of the Bankruptcy Code when both it and the debtor owe debts to one another, so called “triangular” setoffs – setoffs relating to affiliated third party debts –  are not similarly protected, even if provided for contractually.1 In so holding, the Third Circuit became the first US circuit court of appeals to reach the issue and affirmed a substantial body of law on the topic developed by numerous lower courts.
Continue Reading Opinion of Interest – In re Orexigen Therapeutics Inc.: “Mutual” Means Mutual Third Circuit Confirms that Triangular Setoffs not Entitled to Protection under Section 553 of the Bankruptcy Code

In a recent decision in In re Nuverra Environmental Solutions, Inc., No. 18-3084, 2021 WL 50160 (3d Cir. Jan 6, 2021), a divided Third Circuit panel held that an appeal of a Chapter 11 plan confirmation order was equitably moot and that the dissenting unsecured creditor who filed the appeal, David Hargreaves, was not entitled to individualized relief.  Under the confirmed Chapter 11 plan in Nuverra, secured creditors did not receive payment in full and creditors that were holders of prepetition unsecured notes, including Hargreaves, received cash and securities equal to only six percent of the face value of their note claims, while trade creditors were entitled to be paid in full.  The plan proponents described the full payment to these unsecured trade creditors as a “gift” from the secured creditors, who were undersecured based on the debtors’ enterprise value under the plan.
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Continue Reading Opinion of Interest – In re Nuverra Environmental Solutions, Inc.