The bankruptcy litigation arena has been consistently active over the past 12 months – a fertile environment for debtors, creditors and stakeholders to pursue meaningful resolutions to high-stakes litigation cases. At the same time, a number of key trends and developments have emerged in the bankruptcy litigation space, including the increasing prevalence of post-confirmation litigation trusts and mass tort cases. And, with the global economy likely to be stretched for some time to come, bankruptcy litigation is likely to be an ongoing option for creditors seeking to maximise recoveries.
Pomerantz: Could you provide an overview of the most significant trends in the bankruptcy litigation arena over the past 12 months or so?
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Davis: Intercreditor disputes are on the rise as returns for second or subordinated lienholders remain depressed. Allegations of overreaching within the capital stack has led to more litigation, on the one hand, and evolving contractual language, on the other, to clarify the scope of the subordinated arrangement. Similar intercreditor disputes are occurring among unsecured noteholders, with the indenture trustee in such disputes caught in the middle. Part and parcel with this growth in intercreditor litigation has been a trend toward bankruptcy-related litigation occurring in non-bankruptcy courts, including state court. The low returns for unsecured creditors in Chapter 11 cases has led to an increase in veil piercing and other creative attempts to disregard the corporate form and get at the beneficiaries. Similarly, professionals are the target de jour for disgruntled creditors.