On September 8, 2026, LIV Golf New Jersey LLC and 56 affiliates filed Chapter 11 petitions in the District of New Jersey, where the cases are assigned to Judge Michael B. Kaplan. The filing came four months after the Public Investment Fund of the Kingdom of Saudi Arabia (PIF), which had funded the league since 2021, announced it would stop.

The debtors entered the case with roughly $15 million of cash, a secured PIF facility of approximately $495 million and a restructuring support agreement signed with BC Partners Advisors L.P. on the petition date. That agreement contemplates a $300 million investment in a reorganized company in which players who sign on would own 52.5% of the common equity. PIF's debt and equity would be cancelled in exchange for releases. If the transaction fails within the DIP timeline, the fallback is a liquidating plan.

Three weeks in, the docket shows the early DIP milestones met and the plan milestones still ahead. It shows no motion to assume the RSA, although the RSA called for one within three days of filing. On September 29 the debtors told the court they were still negotiating with PIF and BC Partners over LIV 2.0 and expected "further clarity on their path forward in the near term" (Dkt. 171 ¶¶ 5–6). A creditors' committee was appointed the next day. Press reports through September 30 describe several of the league's largest player creditors as undecided.

LIV Golf launched operations in March 2022. By the petition date it ran a 14-event season with 57 contracted golfers, 52 of them on 13 four-player teams and five competing as wild cards (Dkt. 27 ¶¶ 4, 16, 21). The first day declaration organizes the business into two segments. The League entities, LIV Golf Incorporated for the United States and LIV Golf Ltd. internationally, own the events, ticketing, broadcast and league sponsorship rights. Thirteen team entities sell their own sponsorships and generated about 20% of 2025 revenue (Dkt. 27 ¶¶ 22–23).

The compensation model is what separated LIV from the established tours, and it is what made the company expensive to run. Players received guaranteed up-front "commitment" payments and annual payments, team equity in some cases, and prize money, and in exchange granted sponsorship and, for some, name, image and likeness rights to the league and its teams (Dkt. 27 ¶ 20). Those contracts generally run through the 2028 season (Dkt. 24 ¶ 10(d)).

The revenue line was growing. Sponsorship rose from about $16 million in 2023 to $102 million in 2025, and the company reports roughly $300 million of contracted sponsorship for 2027 through 2029. Comparable-event attendance through June 2026 was up about 31% year over year, with ticketing, hospitality and food and beverage revenue up 43% (Dkt. 27 ¶¶ 25, 27). Broadcast rights, the largest revenue source for most professional leagues, contributed 5%.

None of that covered the cost base. The declaration reports approximately $5 billion of cumulative net operating losses through December 31, 2025, about $3.0 billion at LIV Golf Inc. and about $2 billion at LIV Golf Ltd. (Dkt. 27 ¶ 42). Those NOLs are now described as among the debtors' most valuable assets, and the proposed transaction is built around preserving them.

Until June 2026 LIV had no funded debt. PIF-controlled entities supplied approximately $5 billion of equity, and the company's largest liabilities were long-dated unsecured player contracts and vendor obligations (Dkt. 27 ¶¶ 36–37, 41). That changed on June 4, 2026, when LIV Golf Holdings borrowed from PIF under a secured facility guaranteed by the principal operating and IP-holding entities. Additional subsidiaries, including the lead debtor and LIV Golf Events Ltd., acceded as guarantors on August 27 and 28. By the petition date the balance, including interest, was approximately $495 million, secured by substantially all assets of the borrower and guarantors (Dkt. 27 ¶ 39).

The ownership chart runs from two Jersey holding companies, LIV Golf Investments Ltd. and LIV Golf Holdings Ltd., through LIV Golf Incorporated (Delaware), which owns the U.S. event entities, the team entities and two IP-holding companies, and also owns LIV Golf Ltd. (England), which holds the international events business. The Jersey parents are also in a coordinated administration in Jersey, and two U.K. entities filed for recognition in the United Kingdom (Dkt. 27 ¶¶ 30–33).

One prepetition step deserves attention from anyone modeling recoveries. Before August 24, 2026, all but two teams were partly player-owned, with individual players holding up to 40% (more commonly 25%) of team common equity. On that date the team structures were merged in a way that cancelled the player and sponsor equity holdings; the last team was consolidated on the petition date. The declaration states the purpose was to preserve the NOLs (Dkt. 27 ¶ 35 & n.6).

The declaration ties the filing to a single decision. On April 30, 2026, PIF announced it would not provide the equity needed to reach profitability, citing a change in "the current phase of PIF's investment strategy," and committed only to fund the rest of the 2026 season through a secured facility (Dkt. 27 ¶¶ 8, 43). The company says it believed its model would have reached profitability in five to seven years with continued funding (Dkt. 27 ¶ 42).

The governance and advisory work started before that announcement. Independent directors were seated on April 13, and a Strategic Initiative Committee of those directors was formed on April 24 with exclusive authority over conflict matters and any restructuring transaction. With Kobre & Kim as independent counsel, the committee began investigating potential claims against insiders and affiliates, an investigation that remains open and that conditions the company's release of PIF under the term sheet (Dkt. 27 ¶¶ 45–47; Ex. C, Term Sheet at 6).

The operating cuts came alongside the process. The company reduced fan-experience programming and hospitality, curtailed travel and lodging, scaled back player accommodations and cancelled two tournaments (Dkt. 27 ¶¶ 52–53). The DIP market test produced no third-party lender. Each of the twelve institutions Ducera approached in August cited the position any new money would occupy behind PIF's secured claim and insufficient collateral value (Dkt. 22 ¶ 6). PIF was left as the only available DIP source.

The BC Partners term sheet, attached to the RSA as Exhibit C to the first day declaration, describes a recapitalization of LIV Golf Incorporated ("LIV Holdco"), the entity that holds the NOLs, with LIV 2.0 and a team holding company operating beneath it. The debtors' motions describe LIV 2.0 as a go-forward league "under the new ownership of the Players and the lead investor" (Dkt. 24 ¶ 7).

Players who agree to play in LIV 2.0 would receive, on account of their allowed claims and subject to mutual releases and settlement agreements, equity sized to qualify the transaction under Section 382(l)(5) of the Internal Revenue Code. Amended player contracts would carry signing bonuses, the return of certain NIL rights and, on average, about 30% player ownership of the teams (Ex. C at 1–2). Team-sale proceeds would be split 30% to players and 70% to LIV 2.0, with the LIV 2.0 share subject to a term-loan cash sweep of 25% to 50% (Ex. C at 6).

PIF would walk away with nothing. Its funded debt and equity would be "cancelled and extinguished in exchange for releases with no economic distribution," and PIF would release all claims against the company. The company's release of PIF is expressly subject to the Strategic Initiative Committee's independent investigation (Ex. C at 2, 6). The investors also negotiated two upside features: the right to buy one LIV 2.0 expansion team for $1 within ten years of closing, and 2% of LIV 2.0 revenue for seven years once the league reaches profitability (Ex. C at 4).

Closing conditions include a KPMG tax opinion on Section 382(l)(5), affirmations from major sponsors that they will honor their contracts, executed player contracts consistent with the LIV 2.0 business plan "that include players required by the Investors," and a confirmation order. The debtors must also continue an active trade or business through the case (Ex. C at 4). The RSA carries a break fee of 3% of BC Partners' total investment, payable only from an alternative transaction (Dkt. 27 ¶ 63).

If BC Partners' transaction cannot be completed on the DIP timeline, the plan would instead provide for an orderly wind-down through a liquidating trust funded in part by a cash contribution from PIF for holders of allowed general unsecured claims (Dkt. 22 ¶ 1). The debtors call either path the "Approved Plan."

PIF, as prepetition lender, consented to being primed by its own DIP. The facility is a senior secured superpriority term loan of up to $49.6 million: a $14 million interim draw and a single delayed draw after the final order, no later than 35 days after filing. Loans bear 12% PIK interest and mature 120 days after the petition date. Each dollar drawn rolls up a dollar of prepetition PIF debt into DIP obligations (Dkt. 22 ¶¶ 1–4).

Liquidity controls are tight. All proceeds sit in a blocked account under PIF's control and are released weekly only to the extent projected unrestricted cash would otherwise fall below $5 million. Operating disbursements may not exceed the approved 13-week budget by more than the greater of 10% or $200,000 on a cumulative basis. Professional fees after a carve-out trigger notice are capped at $4.5 million (Dkt. 22 at 12, 15, 18). A milestone default triggers a seven-day notice period before PIF may exercise remedies (Dkt. 22 at 17).

The interim order adopts the DIP credit agreement's milestones by reference and does not modify them (Dkt. 79 ¶ 8). Two of the outer deadlines fall on a holiday and a weekend: the disclosure statement order is due the day after Thanksgiving and the confirmation order on a Sunday.

The first day declaration lists four RSA milestones (Dkt. 27 ¶ 62). The first three were due within ten days of filing. None of them is reflected on the docket.

The absence is consistent with milestones that have been extended or waived off the docket. The RSA allows exactly that: each milestone applies "unless extended or waived in writing (email being sufficient) by the Plan Sponsor," which is BC Partners (Dkt. 27, Ex. C, RSA § 4). The RSA also required PIF to become a party by the assumption deadline, on terms acceptable to BC Partners "in their sole and absolute discretion" (RSA § 4(e)), and no PIF joinder appears on the docket. The debtors' own filings point that way. In opposing an expedited hearing for a venue creditor on September 29, the debtors described the cases as "on a tight timeline dictated by the DIP Loan and BC Partners RSA" and said they were "negotiating with their DIP Lender and BC Partners with respect to a go-forward LIV 2.0" (Dkt. 171 ¶¶ 5–6). That description treats the RSA as live and the commercial terms as still open, three weeks after signing.

The first day hearing was held by Zoom on September 9, and Judge Kaplan granted each of the first day motions heard that day, including the DIP motion, with the first omnibus rejection motion held for October 7 (Dkt. 28; minute entries Sept. 9). Orders entered the next day covered cash management, wages, taxes, insurance, utilities, foreign vendors and lien claimants, the appointment of Omni Agent Solutions as claims and noticing agent, appointment of a foreign representative for the foreign proceedings, and notice-and-hearing procedures for claims transfers designed to protect the NOLs (Dkt. 62–79). The deadline for schedules was extended to October 22 (Dkt. 76).

Contract rejections and the first objections

The first omnibus rejection motion (Dkt. 24), filed on the petition date, seeks to reject the player participation agreements, a $3 million-capped sponsor indemnification agreement with one player, player separation agreements, the West Palm Beach office lease and sublease, and a Scottsdale office membership, all effective as of the petition date. It will be heard on October 7. Two responses have been filed. One player and his affiliated entity do not oppose rejection but ask that the order also formally terminate the agreement, and expressly reserve their position on any relationship with a successor to the debtors (Dkt. 179 ¶ 1 & n.4). The law firm that subleases the West Palm Beach space asks to remain through October 31 and offers to pay October rent (Dkt. 176 ¶¶ 1–2).

The venue dispute shows how LIV 1.0 obligations press against LIV 2.0 planning. The Kooyonga Golf Club in Adelaide signed in October 2025 to host a March 18–21, 2027 event. Its first 50% installment, due July 1 and extended to September 11, was never paid. The club estimates AUD 314,250 of costs and lost opportunity from October through December while it holds the dates, and asks the court to force a decision within 30 days (Dkt. 165 ¶¶ 2–5). The debtors answered that the cases are "fully funded and are not administratively insolvent" and that they may be able to decide on the contract by the November 5 omnibus hearing (Dkt. 171 ¶¶ 4–5). The court set the motion for October 22 (Dkt. 174).

The creditors' committee

The committee appointed on September 30 is weighted toward vendors and content partners. Its members are Premier Golf League Limited, Birdie Golf, LLC, Fever Labs, Inc., NEP Supershooters, LP, Rick Shiels Media Limited, Twenty First Group Limited and Fantasy Interactive, Inc. (Dkt. 175). None of the players listed among the debtors' largest unsecured creditors was appointed. The committee will have little time: it was formed one week before the final DIP hearing and eight days before the plan filing milestone.

Most press coverage of the case restates what is in the filings. This section is limited to reporting that goes beyond the docket and bears on where the negotiations are headed. Coverage from Front Office Sports, Field Level Media and Golf.com through October 2 reports no executed player joinder, no amended BC Partners RSA, no milestone extension and no plan.

The reporting fits the debtors' own September 29 statement that terms with PIF and BC Partners are still being negotiated (Dkt. 171 ¶ 6). It also sharpens the arithmetic. The Requisite Players test is two-thirds by amount and one-half by number, so the two-thirds prong turns on a small group of the largest claims, and the public statements from that group so far run from undecided to guarded. Individual counsel for each of those players suggests they are negotiating one at a time over the terms the RSA leaves open, including signing bonuses and the player-by-player equity schedule (Ex. C, Term Sheet at 2). It may also explain the committee's makeup: a player bargaining directly with the debtors and BC Partners over his own LIV 2.0 contract has reason to stay off a fiduciary committee.

The next two weeks decide which version of the Approved Plan the debtors file.

If the players come in, the debtors would be expected to file a plan implementing the BC Partners transaction, along with an RSA assumption motion that would put the investor protections, the break fee and the $1 expansion team option in front of the court and the new committee. If they do not, the DIP milestones point to a liquidating plan funded in part by PIF, with the committee's attention turning to the size of PIF's cash contribution and the scope of the releases PIF would receive. The Strategic Initiative Committee's investigation of potential claims against insiders and affiliates bears on that release in either case.

On September 14, 2026 the United States Bankruptcy Court for the Southern District of California entered a fifteen-page memorandum decision explaining the basis for its final approval of a debtor's motion to obtain postpetition financing. The case is CashCall, Inc., Case No. 26-03102, before Judge J. Barrett Marum; the petition was filed July 20, 2026. The decision is captioned NOT FOR PUBLICATION.

The financing was provided by an entity owned by the debtor's founder, who was also the debtor's sole shareholder. The court approved it, but only after the parties made four changes to the agreement, and it used the occasion to set out a framework that had not previously been articulated in the district.

The decision describes the debtor as a California corporation that makes unsecured, high-interest loans to consumers, quoting Consumer Financial Protection Bureau v. CashCall, Inc., 135 F.4th 683, 687 (9th Cir. 2025), cert. denied, 146 S. Ct. 1779 (2026). The decision states that until recently the debtor's sole shareholder, sole director and chief executive officer and president was its founder.

At the petition date the debtor was no longer actively making loans and had no employees. It continues to collect receivables from its outstanding loan portfolio and scheduled accounts receivable of $4,477,289.56, of which $74,636.00 was noted as doubtful or uncollectible.

Two final judgments preceded the filing, both affirmed on appeal.

The decision states that, according to the Bureau, the pledged account currently holds approximately $144 million in assets, making the Bureau's judgment almost entirely secured, and notes that the debtor and the founder have continued to challenge enforcement in district court after the Ninth Circuit's affirmance and the Supreme Court's denial of certiorari. A footnote records that on September 11, 2026 the district court denied requests for relief from the judgment under Federal Rules of Civil Procedure 60(b)(5) and 60(b)(6).

The decision also notes, in a separate sentence, that the entity holding the pledged account is the debtor-in-possession lender.

The fraudulent transfer action

The class representative filed a fraudulent transfer action in Orange County Superior Court seeking to recover a $45 million distribution the debtor made to its founder in October 2021. The decision attributes to the class representative the characterization that the distribution was made days before closing arguments in the state court class action. That action was set for trial the month after the decision and is stayed by the bankruptcy filing.

The decision states that the chapter 11 petition came on the heels of an adverse ruling on the debtor's and the founder's motion for summary judgment in that action, issued ten days before the petition date.

The motion sought a secured, superpriority revolving facility in the aggregate principal amount of $3,995,000, with $1,300,000 proposed to be available on entry of an interim order. Interest accrues from the petition date at a per annum rate equal to SOFR, added to principal monthly, with no interest payment obligations until maturity or termination; the default rate is 2% per annum above that rate. The motion sought liens under sections 364(c)(2), 364(c)(3) and 364(d)(1) and a superpriority administrative claim under section 364(c)(1). The collateral package included, subject to entry of a final order, all avoidance actions brought under chapter 5 or applicable state law equivalents, together with their proceeds.

At the interim hearing the court granted only $300,000, the debtor's estimated expenses for one month, and only without a lien on the debtor's chapter 5 claims, which the lender agreed to forgo for interim purposes.

The decision states that the founder agreed to resign on his own volition, and describes the remedies change as one the court highlighted after the hearing as required to make the document consistent with the debtor's representations at the final hearing. The resignation letter states that the founder will not use his ownership shares or other rights to appoint directors or officers beyond the existing independent director and proposed chief restructuring officer, and will have no further involvement in the debtor's ongoing operational or litigation decisions.

The decision observes that the agreement, in effect, provides the debtor with an interest-free loan to the extent the debtor repays any portion of the balance from the proceeds of a recovery in the fraudulent transfer action.

Three parties timely opposed the motion: the United States Trustee, the Bureau, and the class judgment creditor. Before the final hearing the court issued a tentative ruling setting out findings and issues of concern and stating that it was not inclined to approve the motion absent satisfactory answers.

The court begins from section 364(c), which permits a debtor in possession unable to obtain unsecured credit as an administrative expense to obtain credit with superpriority, with a lien on estate property, or with a junior lien on already-encumbered property. The court states that although the subsection is phrased disjunctively, a debtor in possession may pursue financing under all three provisions.

The court then states that there is little case law within the Ninth Circuit, at the bankruptcy appellate panel or circuit level, which provides a framework for the bankruptcy court's evaluation of proposed financing under section 364(c). It takes from In re Harbin, 486 F.3d 510, 523 (9th Cir. 2007), the single factor of whether the financing transaction benefits the bankruptcy estate, and notes In re Fleetwood Enterprises, Inc., 471 B.R. 319 (9th Cir. BAP 2012).

In the absence of other Ninth Circuit authority, the court adopts, in its consideration of the debtor's request, the four factors articulated in In re Western Pacific Airlines, Inc., 223 B.R. 567, 572 (Bankr. D. Colo. 1997), as collected in In re Clouter Creek Rsrv. LLC, 669 B.R. 764, 781 (Bankr. D.S.C. 2025), observing that they dovetail with the Harbin benefit-to-the-estate factor.

The decision states that the debtor in possession seeking approval under section 364(c) and/or (d) bears the burden of proof on these factors.

The court holds that where the proposed financing is an insider transaction, as it states is the case here, the first factor is supplanted by a heightened scrutiny analysis. It notes that heightened scrutiny is not imposed directly by statute, and grounds it in the practice of applying such scrutiny to insider transactions under other provisions of the Code — section 363 sales, settlements and compromises, and insider proofs of claim.

The court traces the standard to Pepper v. Litton, 308 U.S. 295 (1939), including that decision's characterization of bankruptcy courts as courts of equity, its rule that the dealings of insiders with a corporate debtor are subject to rigorous scrutiny with the burden on the director or stockholder to prove both good faith and inherent fairness from the viewpoint of the corporation and those interested in it, and its test that the transaction must carry the earmarks of an arm's length bargain or equity will set it aside. The court notes that equitable subordination is now codified at section 510(c), but that Pepper's broader guidance on insider transactions generally remains relevant.

The decision records that the debtor initially claimed business judgment deference, then, in response to opposition from the United States Trustee and the Bureau, conceded that business judgment deference does not apply where the lender is an insider, and urged the court to adopt the framework of In re SPAC Recovery Co., 676 B.R. 260, 273 (Bankr. S.D.N.Y. 2026), which applied Delaware's entire fairness standard.

The court states that it is not persuaded that SPAC provides a wholesale framework, because that decision applied Delaware law to a Delaware corporate debtor while this debtor is a California corporation. The court does not reject the decision; it relies on SPAC later in the same opinion on the market-testing point.

The court states that although both standards reference fairness, there are in fact differences between them in terms of scope and application, among other things. It therefore applies the Pepper totality-of-the-circumstances inherent fairness test.

The court concludes that the revised agreement encapsulates terms inherently fair to the debtor and its creditors. It identifies five grounds.

The court states that its conclusion rests, based on the foregoing and particularly on the fact that the debtor is now operated by an independent chief restructuring officer with its decisions directed by an independent director, that the agreement is the result of good faith negotiation and inherently fair to the debtor, the estate and the creditors.

The court expressly does not decide whether the founder actually caused an improper shareholder distribution — stating that this is something it does not determine today, if ever.

The remaining factors

On the availability of alternative financing, the court states that the inquiry is highly factual and is normally satisfied by testing the market, but that a debtor may satisfy it by showing that going to market is of limited utility, citing SPAC at 275 for the proposition that the absence of a true market for litigation-claim assets makes soliciting competing bids of limited utility and often impracticable. The court then states that testing the market under this context is not conditioned on a reflexive number of loan applications or submission of bids, and that evidence in this context will typically be subject to proof by expert testimony. The qualifier matters: the holding is framed for the situation where no true market exists, not as a general rule for every section 364(c) case.

The evidence here was the financial advisor's declaration that traditional financing in this amount and on these terms was simply not available to this debtor, and that any lender willing to lend at this size would do so only by underwriting litigation-linked collateral as a litigation finance transaction on pricing and terms no better and likely materially worse. The court twice describes that evidence as uncontroverted.

On the best interests of the estate and creditors — which the court states likely presents the most important factor regarding a request for section 364(c) financing — the court states that it is mindful of the entire creditor body as a whole, that the Bureau and the class judgment creditor hold a significant amount of the debt but the debtor has other creditors, and that the opposing creditors' interests may not align directly with those of the debtor's other creditors. It identifies a collective interest in an orderly prosecution of the fraudulent transfer action and in an orderly reorganization or liquidation for the debtor. On the fourth factor, the court reasons that no better offers appear likely on these facts, a conclusion it states is at least partially borne out by the fact that no better offers came in between the initial and final hearings.

The decision concludes that the modifications to the finance terms and the actions undertaken by the debtor, the founder and the lender sanitized the issues with the agreement as initially filed and balanced the debtor's need to obtain financing to independently evaluate and potentially pursue the claims against the founder, while stating that the opposing parties' objections and arguments were well-taken.

The court granted the motion on a final basis at the August 26, 2026 hearing subject to revisions made on the record. The resulting order was signed September 1 and entered September 2, 2026; it authorizes financing on the terms of the second revised agreement, including the court's requested changes, and records the court's commitment to issue a separate memorandum decision explaining the basis for its decision no later than September 14, 2026. The memorandum decision issued on that date.

Two motions filed in the same week would unwind or overtake the ruling. Neither has been decided.

The decision is a bankruptcy court memorandum decision captioned NOT FOR PUBLICATION. It binds no other court, and its designation indicates it is not intended as citable authority, though it is publicly filed and available on the docket. Several features of the opinion nonetheless reach beyond the immediate parties.

The debtor's governance at the time of the decision consisted of a chief restructuring officer, who signed the petition, and an independent director. The debtor established a special committee of the board with sole and exclusive responsibility for all matters concerning insiders or related parties, with the independent director as its sole member.

Noble Supply & Logistics, LLC and its affiliated debtors filed a thirteen-page emergency motion on September 11, 2026 in the United States Bankruptcy Court for the District of Delaware seeking an order compelling the Defense Logistics Agency to perform under executory contracts, enforcing the automatic stay, ordering the agency to cease all violations of the stay, and granting related relief. The cases are jointly administered before Judge Craig T. Goldblatt under Case No. 26-11369 and were filed on August 30, 2026.

The United States filed a fourteen-page objection on September 16, 2026. The court held a hearing the same day. On September 17, 2026 each side filed a certification of counsel attaching its own proposed form of order; the debtors' certification states that the parties conferred following the hearing but were unable to agree.

The motion describes the Defense Logistics Agency as the debtors' largest customer and states that through executory contracts with the agency the debtors supply the United States military and its allies with tactical gear, safety and construction equipment, and other goods necessary to drive and sustain warfighter readiness. Research Suite case data reports assets at filing of approximately $200 million, annual revenues of approximately $1.0 billion and 294 employees, in the wholesale trade industry. The motion gives the debtors' principal place of business as 1 Marina Park Drive, Suite 220, Boston, Massachusetts.

The motion states that all four are indefinite delivery, indefinite quantity contracts obligating the debtors to supply an indefinite quantity over the full term, typically a one-to-ten-year period. The objection states that each of these is in fact a family of contract numbers and that the parties contract with multiple agency components, including a weapons support component and a troop support component.

How payment works

The motion states that agency payment obligations are governed by the Prompt Payment Act, 31 U.S.C. §§ 3901–3905, and underlying Federal Acquisition Regulations, generally requiring payment within thirty days of receipt of a proper invoice under 31 U.S.C. § 3903(a)(1)(B). The debtors upload invoices to the agency's web-based invoicing platform. Each supplier has a unique commercial and government entity code, which the motion states the agency uses to control payments to its suppliers. An agency representative confirms proof of delivery to the government end user and proper submission, then instructs the Defense Finance and Accounting Service to remit payment.

The motion characterizes the agency's conduct as serial violations of the automatic stay reflecting a pattern of disregard for the debtors' rights, and states that the agency instituted a complete payment block on certain of the debtors' codes, preventing those debtors from receiving any payments from the agency.

The motion identifies invoices totaling $3,226,144.26 as subject to the block, all of which it states became due and owing on September 8 or 9, 2026. The supporting declaration explains that the invoice schedule was downloaded directly from the agency's invoicing platform on September 10, 2026 using the debtors' login credentials, then reformatted — converted from a text file, sorted, with invoices due after September 9, 2026 removed and certain columns deleted.

The motion identifies sections 105(a), 362(a) and 365 of the Bankruptcy Code and Bankruptcy Rules 9013 and 9014 as the statutory predicates. Its theory is that the contracts are executory because material performance remains due on both sides — the debtors' ongoing obligation to supply goods for the full term, and the agency's obligation to inspect and, if accepted, pay for goods supplied — that a counterparty may be compelled to perform pending assumption or rejection, that section 365(e) bars ipso facto termination or modification, and that contractual rights are property of the estate protected by section 362(a)(3) against interference. The motion reserves the right to seek further or additional relief against the agency.

The objection states three grounds: that the contracts at issue are not executory, that the amounts sought are not yet payable, and that the debtors owe undisputed prepetition debts to the United States that are subject to setoff for which the debtors have not provided adequate protection. The objection does not raise sovereign immunity, section 106, or the police and regulatory exception of section 362(b)(4).

On the procedural point the objection relies on the principle that section 542's turnover provision is not self-executing and contends the debtors cannot circumvent section 542 or the procedural requirements of the Bankruptcy Rules. On the stay point it relies on the rule that section 362(a)(3) prohibits affirmative acts that would disturb the status quo, and argues that a contrary reading would render section 542 superfluous, concluding that any temporary withholding of payments is not an affirmative act to disturb the status quo.

On timing, the objection states that many of the invoices cited by the debtors indicate they were received by the agency less than thirty days before the filing, and that the top two invoices, received August 24 and August 21, 2026, alone constitute $1,249,335 of the claimed $3,226,144.26. It separately flags a third invoice of $767,626.84 stated as received August 25, 2026. The objection also states that the Federal Acquisition Regulation disputes clause remains available to the debtors and that, although the debtors said in the first day declaration that they intend to appeal a termination for cause under the Contract Disputes Act of 1978, the agency had received neither a certified claim nor notice of an appeal.

On setoff, the objection contends that a temporary refusal to pay a debt while preserving a right of setoff does not violate the automatic stay, that section 553(a) preserves setoff, that the United States possesses a common law right of setoff and is treated as a unitary creditor for mutuality purposes, and that section 542(b) does not require payment of a matured debt to the extent it may be offset under section 553. It states that the United States is not exercising setoff rights without court authorization and is preparing a motion to do so.

The objection states that the accounting service identifies the debtor through a single commercial and government entity code, that an administrative hold is in place with respect to amounts due for goods and services supplied before the petition date associated with that code, that the hold does not prevent the debtors from submitting invoices or requesting payment through the platform, and that no amounts have been set off, applied, transferred or otherwise used. It also states that because of the bankruptcy filing the agency has been stayed from issuing a modification reflecting the cancellation of 11,893 delivery orders under the aviation contract, cancellations the objection states were the subject of notifications dated July 17, August 17 and September 1, 2026.

The objection asserts two categories of claim by the United States against the debtors, which together exceed the amount the motion seeks.

The objection also states that the Department of Justice's estimated maximum potential False Claims Act recovery on approximately 500 investigated transactions at one air force base would exceed $7.8 million assuming liability, treble damages and full statutory penalties, and that those transactions did not comprise all transactions performed under the relevant contract, which involved thousands of transactions.

Both certifications of counsel attach a proposed order granting the motion. The debtors' certification states that their proposed order accurately reflects the court's rulings at the hearing, and that the parties are available for a status conference if the court has questions about the forms of order prior to entry. The provisions on which the two versions agree and disagree are set out below.

Where the versions agree

Both grant the motion, though the agency's version adds that the relief requested is granted to the extent modified as set forth in the order. Both require the agency to remit payment to the debtors in the ordinary course of business, with good-faith negotiation of any payment dispute before it is raised with the court. Both require the debtors to pay $537,672.89 to the Department of Justice on account of the settlement agreement, though the agency's version adds any accrued interest and ties the timing to the lifting of the block rather than to receipt of a fixed payment. Both authorize the debtors to take actions to effectuate the order, make it effective immediately notwithstanding Bankruptcy Rule 6004(h), deem notice sufficient, and retain exclusive jurisdiction.

Where they diverge

Two margin comments in the blackline record the agency's reasons. The first states that the Department of Justice has confirmed the block was lifted as of 1:30 p.m. on September 17, 2026. The second states that the Department is unable to agree or consent that the agency may have to remit payments outside the ordinary course of business as required by applicable federal law and regulations.

As of the last filing reviewed, no order had been entered on the motion. The competing certifications leave four questions unresolved on the face of the record.

Separately, the objection states that the United States is preparing a motion to exercise its setoff rights, and the debtors' proposed order anticipates such a motion. Neither version of the order purports to determine the validity or amount of the asserted claims.

The motion was filed on September 11, 2026, at which point no official committee of unsecured creditors had been appointed. The committee was appointed on September 16, 2026, the day of the hearing; counsel to the committee is not identified in the filings reviewed for this report.

Air Baltic Corporation AS, together with Air Baltic Training, SIA and Baltijas Kravu Centrs SIA, filed voluntary chapter 11 petitions in the United States Bankruptcy Court for the Southern District of New York on September 14, 2026. The petitions were supported by a 69-page declaration of the company's chief financial officer filed the same day. The cases are pending before Judge Lisa G. Beckerman under Case No. 26-12188, with joint administration requested. The docket records that the case was designated as a mega case under Local Bankruptcy Rule 1073-1.

The declaration describes the company as the flagship airline of Latvia and the leading airline in the Baltic states, operating as a hybrid carrier. It attributes the filing to a sequence of external shocks culminating in a jet fuel price spike that reached a company carrying no fuel hedges.

Schedule 4 to the declaration reports total assets of approximately $1.8 billion against total liabilities of approximately $2 billion as of June 30, 2026, on a basis the schedule states is consolidated among affiliated debtors and non-debtors.

Air Baltic Corporation AS is a Latvian joint stock company established on February 8, 1995 and is the direct parent of the other debtors. The debtors' service address is Tehnikas Street 3, Lidosta “Riga,” Mārupe Parish, Mārupe District, LV-1053, Latvia.

As of the petition date the company operated fifty-four Airbus A220-300 aircraft, a single-type fleet maintained since 2020, which the declaration states makes it the largest A220 operator in Europe. The declaration states that none of the operating fleet is owned outright: the entire fleet is leased from third-party lessors other than eight aircraft financed under finance leases.

The declaration reports that the company employs approximately 3,000 people of more than thirty nationalities, approximately 93% of them in Latvia, with 198 employees in Estonia and Lithuania representing approximately 7%. Approximately 10% belong to one of four trade unions. The declaration states there are two collective bargaining agreements and that there has been no work stoppage since operations began.

Ownership

Shares are administered through Nasdaq CSD. The declaration reports that the two largest shareholders are the Latvian Ministry of Transport, at approximately 88%, and Lufthansa, at approximately 10%. Three of the five supervisory board members are selected by the Ministry as majority shareholder, a number the declaration states falls to one if its holdings drop below 25% of outstanding shares; the remaining two are appointed by Lufthansa and by a minority shareholder holding less than two percent.

The declaration reports 2025 total passenger revenue of approximately €593 million ($687.9 million), comprising €549 million ($636.8 million) in ticket revenue and €44 million ($51 million) in ancillary revenue, or approximately 76.9% of total operating revenue, against 77.1% in 2024. Leasing revenue under ACMI arrangements grew from approximately €77 million ($89.3 million) in 2022, or 15% of total operating revenue, to approximately €157 million ($182.1 million) in 2025, or 20.3%, on an average of 14.1 aircraft deployed.

Revenue rose in every year from 2021 through 2025 on the figures the declaration reports, and the company posted a positive net result in only one of the seven years shown.

The declaration sets out a history of repeated recapitalization by the company's principal shareholder.

The declaration states that a contemplated initial public offering on Nasdaq Riga and the Frankfurt Stock Exchange targeted an estimated €250 million ($290 million) primary capital raise, and that the timeline shifted repeatedly as European airline share prices declined.

The declaration identifies fuel as the proximate trigger for the filing. The company entered 2026 assuming a jet fuel price of approximately $685 per ton. Following the outbreak of the Iran-U.S. conflict in early 2026, prices peaked at approximately $2,000 per ton, which the declaration states is roughly three times the budgeted figure and approximately 109% above January 2026 levels. The actual average price for the first eight months of 2026 was $1,168 per ton, a $454 increase over the same period in 2025.

The declaration states the company was 90% unhedged for fuel and that every $100 increase per ton raised costs by approximately $16.5 million, a sensitivity it states is based on expected consumption of 165 thousand tons for April through December 2026. It states that fuel historically represents approximately 20% to 27% of total operating expenses, and that services to Tel Aviv and Dubai were temporarily ceased, with Dubai service not resumed as of the filing.

On August 17, 2026 bondholders approved resolutions converting the August 14 and November 14, 2026 cash coupons to payment-in-kind and addressing the €25 million ($29 million) minimum liquidity covenant; the declaration describes this treatment in one place as a suspension and in another as a waiver of certain minimum liquidity covenants. The declaration states that the 2029 bonds were quoted in the mid-93s in late January 2026 and in the 20s by August 2026, which it states effectively foreclosed any realistic prospect of refinancing or extending the funded debt out of court.

The declaration reports aggregate funded debt of approximately €503.3 million ($583.9 million) as of the petition date, of which approximately €484.7 million ($562.3 million) was secured.

The bond line reflects approximately €393.8 million ($456.8 million) of principal plus approximately €4.4 million ($5.1 million) of accrued and unpaid interest. The bonds were issued on May 14, 2024 in an aggregate principal amount of €340 million ($394.4 million), with an October 2024 tap issuance of a further €40 million ($46.4 million), and are admitted to the Euronext Dublin Official List. U.S. Bank Trustees Limited is identified as holder of the bond debt on the debtors' schedules, and the declaration refers to a bond trustee in connection with the August 2026 consent solicitation.

The finance lease figure is stated two ways in the declaration. The capital structure summary table reports approximately €78.6 million ($91.2 million); the narrative paragraph describing the leases reports approximately €78.3 million ($90.8 million). Both are reproduced above rather than reconciled. The leases cover eight aircraft, seven spare engines and a flight simulator. The declaration defines the equipment subject to the Export Development Canada mortgages as the finance-leased aircraft and the spare engines; the flight simulator is described separately, and the declaration does not state that the mortgages extend to it.

The BluOr Bank facility was issued in August 2025 as a €10 million ($11.6 million) five-year facility bearing six-month EURIBOR plus a fixed margin of 5.5%, maturing July 2030, to refinance construction of the cargo hangar at Riga International Airport. The government loan figure reflects the April 2026 €30 million ($34.8 million) loan after approximately €12.9 million ($15 million) of principal and interest had been repaid by July 2026.

The declaration's schedule of largest unsecured creditors identifies the following claims. The schedule is captioned as a list of the twenty largest unsecured creditors, while the body of the declaration describes the consolidated list as covering the thirty largest; the discrepancy appears in the document as filed.

The declaration separately identifies Pratt & Whitney as the single largest unsecured creditor. The engine manufacturer appears in the declaration in two capacities: as the largest unsecured claimant, and as the supplier of the PW1500G, which the declaration states is the only engine certified for the A220-300. The declaration attributes an unprecedented spare-engine shortage to a powdered-metal issue affecting that engine, with average aircraft-on-ground of 8.0 in the 2024 summer season and 7.7 in 2025, against a quarterly average that peaked at 13.

The declaration states that the company engaged restructuring professionals in the spring of 2026 and developed a business plan intended to increase liquidity by restructuring obligations and reducing debt. The plan has not been approved by the court and its implementation, as the declaration describes it, depends on consents the debtors had not obtained as of the filing.

The declaration identifies thirteen first day motions and applications filed alongside the petitions, addressing enforcement of the automatic stay, case management procedures, the creditor matrix and redaction of personal identifying information, joint administration, an extension of time to file schedules and statements, retention of a claims and noticing agent, cash management, assumption of critical airline agreements, customer programs, payment of non-U.S. vendor and lien claimant claims, insurance, taxes and employee wage obligations. A motion for postpetition financing was filed contemporaneously and separately.

The docket records that on September 16, 2026 the court entered interim or final orders disposing of each of the first day pleadings, together with an interim order on the financing motion.

The cases are pending in the United States Bankruptcy Court for the Southern District of New York, Case No. 26-12188, before Judge Lisa G. Beckerman. Milbank LLP appears on the declaration as proposed counsel to the debtors and debtors in possession.

The declaration states that the debtors retained Seabury Securities LLC and Milbank LLP to assist in evaluating strategic alternatives. The declaration does not assign Seabury a titled role, and no retention application for that firm appeared on the docket through September 18, 2026.

By order entered September 16, 2026, the court approved the appointment of Epiq Corporate Restructuring, LLC as claims and noticing agent nunc pro tunc to the petition date. The debtors' schedules state that no official committees were formed prepetition, and the case record shows no official committee of unsecured creditors appointed as of September 18, 2026.

The Debtors conducted a virtual auction for the Deidentified Data on Friday, August 14, 2026 and filed a notice of the results the same day. Google LLC was selected as Successful Bidder with total consideration of $10,000,000, and Mercor.io Corporation was designated Alternate Bidder with total consideration of $7,500,000 [Dkt. 1463].

Three of the bids received after the Deidentified Data Final Bid Deadline were designated Qualified Bids. The auction commenced by remote teleconference, was moderated by Davis Polk and PJT Partners, and lasted approximately two and a half hours [Dkt. 1470]. The consumer privacy ombudsman's report dates the auction to August 13, 2026 [Dkt. 1581]; the auction results notice and the supporting declaration both state August 14, 2026.

Google's opening bid was $5 million in cash and provided for a third-party deidentification process for which the buyer would bear the cost. Mercor.io submitted the first overbid, offering either $5.2 million using Google's form bill of sale or $7 million if the terms allowed it to complete the deidentification process with its own tools. The Debtors determined that $5.2 million "was the highest bid for that round despite the lower price." Mercor.io also offered $10 million subject to an in-house rather than third-party deidentification process; the Debtors designated its $7.5 million bid as the Alternate Bid [Dkt. 1470].

The declaration states that the Debtors considered "not only economic factors, but also non-economic factors, such as whether the sale would provide for a documented and acceptable deidentification process," and that "given various privacy laws and other process considerations, these noneconomic factors may be outcome-determinative" [Dkt. 1470]. It further states that one initial bid requested certain customer list information, and that by the first round of the auction the most competitive bidders had agreed to bid on an asset schedule that expressly excluded personally identifiable information. The customer list is subject to a separate marketing process, with approval to be sought at a future hearing.

Sources: Notice of Auction Results [Dkt. 1463]; micro1 Notice of Intent [Dkt. 1556]; objections at [Dkt. 1489], [Dkt. 1508], [Dkt. 1521], [Dkt. 1538], [Dkt. 1539], [Dkt. 1558].

The ombudsman's report states that the Debtors divided their digital assets into three groups: intellectual property, personal data, and deidentified data. The August auction covered the third group, described in the report as enterprise data including deidentified data pertaining to "approximately 190 million airline flights taken by Spirit passengers." The report states that a subsequent auction to sell the personal data of the 97.5 million passengers will be conducted at a later date [Dkt. 1581].

The asset schedule attached to the auction results notice directs the Debtors to "[r]etain and transfer all emails, OneDrive, SharePoint, and Teams data within the native Microsoft 365 environment." The Association of Flight Attendants states the schedule marks as included approximately 100 million emails across 80,000 email accounts, 17,082,644 OneDrive items, 20,577,677 SharePoint items and 500,000,000 Teams items, together with 175,658 employee records dating from August 1986, 3,426,618 payroll records and 148,018 employee tax forms from June 2016, 1,092,000 time card records from December 2012, Crew Base information for 4,600 crew, and 5,014,676 crew pairings from January 2021 [Dkt. 1489].

Sources: Consumer Privacy Ombudsman Report [Dkt. 1581]; AFA-CWA Limited Objection [Dkt. 1489]; ALPA Limited Objection [Dkt. 1558]; Google Preliminary Response [Dkt. 1594].

Counsel for Google advised the ombudsman that the deidentified data "will be used for the training of artificial intelligence (AI) models" [Dkt. 1581]. Springshot's objection quotes a Google spokesperson on August 17: "We acquired part of an enterprise dataset from Spirit Airlines, which can be helpful in improving our products and AI models" [Dkt. 1508].

The Debtors filed a proposed sale order on August 17, 2026 [Dkt. 1469]. The seller is Spirit Airlines, LLC. The order recites that the Debtors "received three Qualified Bids" and would, if entered, find that Spirit "has satisfied the requirements of section 363(b)(1)(A) of the Bankruptcy Code," transfer the assets free and clear under section 363(f) with liens attaching to proceeds in the same order of priority, deem lienholders who did not timely object to have consented, find that "[t]he Successful Bidder acted in good faith as provided in section 363(m)," permanently enjoin successor liability, de facto merger and substantial continuity claims, and provide that objections not withdrawn, waived or settled "are hereby denied and overruled on the merits."

Paragraph 12 waives "[a]ny Bankruptcy Rule or Local Rule that might otherwise delay the effectiveness of this Order," which is to be effective and enforceable immediately upon entry. Rules 6004(h) and 6006(d) are not named. Paragraph 11 provides that if the transaction with Google is not consummated, the Debtors may accept the Alternate Bid on notice, and Mercor.io is then deemed the Successful Bidder.

Two provisions address the nature of the asset. A recital states that the sale "is not intended by the Debtors and the Successful Bidder to be a sale of Personal Data (as defined in the Sale Agreement)." Paragraph 16 provides that "the Buyer may direct the Debtors to deliver the Deidentified Data to one or more Deidentification Agents to Deidentify, prepare, transform and aggregate the Deidentified Data for further delivery to the Buyer."

The proposed order runs to eighteen decretal paragraphs. It contains no re-identification prohibition, no restriction on the buyer's use of the data, no certification requirement running to the Court, and no reporting obligation. The privacy terms of the transaction appear in the Sale Agreement, which is a bill of sale between Spirit Airlines, LLC and Google LLC.

The Court so-ordered a stipulation directing the United States Trustee to appoint a consumer privacy ombudsman on July 15, 2026 [Dkt. 1332]. The United States Trustee appointed Lucy L. Thomson on July 17 [Dkt. 1350], and the Court approved the appointment on July 23 "pursuant to 11 U.S.C. § 332 and Federal Rule of Bankruptcy Procedure 6004" [Dkt. 1380].

On August 12 the ombudsman requested an extension of her report deadline to August 19, 2026. The request states that her appointment was approved "only 21 business days before the sale hearing scheduled for August 19, 2026," that she "gained access to the Spirit Data Room on August 11, 2026," that the Debtors were conducting two auctions that week and had not yet announced the successful bidders, and that the governing order required any CPO report at least seven days before the sale hearing [Dkt. 1446]. The report was filed on September 8 [Dkt. 1581].

The privacy policy

Spirit's privacy policy was effective December 22, 2022 and last updated January 14, 2026. Its sharing section provides that if another company acquires or plans to acquire the company, business or assets, Spirit "will also share information with that company, including at the negotiation stage," and separately states, "We do not sell personal information." The Debtors rely on the first provision. The report states that "the meaning of the sentence is not entirely clear," that it "does not address the sale of personal data or specify in any way what information is to be 'shared,'" and that "[w]hen read in the context of 'including the negotiation stage,' a reasonable interpretation of the sentence does not appear to authorize the sharing (or sale) of all the company's personal data." The report further states that the policy "does not contemplate the transfer of the personal consumer data or e-mails of Spirit consumers to a technology company for the development and/or training of AI models" [Dkt. 1581].

The deidentification standard

The report states that the Debtors and the successful bidder voluntarily agreed to follow the deidentification standard in the California Consumer Privacy Act, Cal. Civ. Code § 1798.140(m), that the successful bid "expressly incorporates the three requirements set forth under that standard," and that it "will require an independent third party to conduct the deidentification based upon industry standards and practice." The report describes these as "good first steps" and states that "[t]he process for deidentification the Debtors have adopted is thoughtful and designed to meet the latest professional standards available" [Dkt. 1581].

The report cites regulatory and published sources on re-identification risk. It states that the Department of Justice's Data Security Program does not exclude anonymized, pseudonymized or deidentified data, that the final rule found advances in technology increasingly enable re-identification, and that the Department agreed the HIPAA de-identification standard no longer protects individuals. It quotes the Department's statement that "[o]pen-source reporting has repeatedly raised concern[s] that supposedly anonymized data is rarely, if ever, truly anonymous." It cites NIST NISTIR 8053, a July 2026 Gartner publication on AI-generated inferences, the U.S.-EU PNR Agreement, and Ligue des droits humains v. Conseil des ministres, Case C-817/19 (21 June 2022). The report states twice that "technology has far outpaced the law."

The report also states that the Federal Trade Commission Act excludes air carriers from that agency's jurisdiction under 15 U.S.C. § 45(a)(2), so Spirit is covered by requirements promulgated by the Department of Transportation; that "[t]here is no duty for a company to report to a federal or state regulator or affected individual if deidentified personal data has been reidentified"; and that "[t]here is no external way to verify if a private entity has privately deidentified 'anonymized' data."

The report identifies eight systems among the enterprise data categories that "had multiple processing purposes, some of which may have involved the processing of personal data," notes that some databases contain identity-related information dating back to 2018, and states that of those eight, the flight reservations database and the Revenue Transactions / PNR Data "currently contain voluminous amounts of personal data" for more than 97 million passengers.

Recommendations

The report does not recommend denial of the sale and does not affirmatively recommend approval. Its formulation is conditional: "To approve this sale, the CPO recommends that the Court adopt the proposed conditions to be provided as Attachment A to this CPO Report." Five condition categories are listed. The report states that "[t]he final list of recommended conditions will be filed promptly"; Attachment A is not part of the 23-page filing.

Source: Consumer Privacy Ombudsman Report to the Court [Dkt. 1581] at 4, 5, 13, 14, 17, 21, 22.

On children's data, the report states that "the COPPA rules do not apply to Spirit because the company collects personal data about children, not from children, nor do the rules apply to deidentified data," that the FTC updated COPPA effective April 22, 2026 to require "distinct, standalone, verifiable parental consent explicitly for AI model training or sharing data with third-party AI vendors," and that "[t]he risk of reidentification is particularly problematic when the deidentified data pertains to children" [Dkt. 1581].

A footnote records that Mercor.io "experienced a supply chain security incident" in early 2026 and that if the Court decides to consider that company as the successful bidder, the ombudsman requests an opportunity to conduct further research into the circumstances of the breach. The same footnote records micro1's notice of intent to submit a competing bid.

Google LLC appeared through Cleary Gottlieb Steen & Hamilton LLP on September 9 and filed a preliminary response the same day [Dkt. 1594]. The response states that the ombudsman's role is to advise the Court where a debtor seeks to sell the personally identifiable information of consumers, citing 11 U.S.C. § 363(b)(1)(B) as "confining the role of a consumer privacy ombudsman only to a sale of 'personally identifiable information'" and 11 U.S.C. § 332(a) to (b), and that "the proposed sale of Deidentified Data is not, and never has been, a sale of Consumer Data."

The response states that databases the Debtors represented to Google as primarily containing consumer data "are completely outside the scope of the transaction, such that they will not be provided to Google in any form, even deidentified form." Any incidental consumer data within in-scope databases is to be deidentified by an independent third-party agent before transfer; Google bears the cost of that agent, which is "an independent party selected by the Debtors." Certified completion of deidentification "is, and always has been, a closing condition under the Sale Agreement," citing section 3(c).

The response discloses that "prior to the filing of the CPO Report, Google agreed to exclude from the scope of the transaction additional databases that the Ombudsman considered may disproportionately contain Consumer Data," identified as "the PNR/Transaction data and the Refunds, Inflight/Onboard Purchases, Timecard Information and WiFi Sales datasets." Google states this "was not an offer to 'narrow the types of personal data items to be included in the sale to reduce the likelihood that the data can be reidentified'" but an exclusion of those datasets from the transaction. Five of the eight systems the ombudsman identified as possibly involving the processing of personal data are among the removed datasets. The docket reflects no change to the $10,000,000 purchase price.

Google states that it "intends to supplement this Preliminary Response prior to the hearing" and "intends to respond to such objections at a later date prior to the hearing to approve the sale." Neither filing appeared on the docket through September 11.

Six objections and joinders directed at the deidentified data sale were filed between August 18 and September 4, 2026. Each states that it does not seek to unwind the auction or reduce the purchase price. AFA states it "does not seek to disrupt the Debtors' sale process, to unwind the Auction, or to prevent the estates from monetizing data assets"; Springshot states it "does not seek to scuttle any sale"; IAE states it "does not oppose the Data Sale in its entirety"; ALPA states it "does not seek to bar the sale of assets of the estate."

Case docket: In re Spirit Aviation Holdings, Inc., No. 25-11897 (Bankr. S.D.N.Y.).

The employee confidentiality filings

AFA states that the Sale Agreement applies "a single content-based screen: the removal or transformation of data elements that would permit the information to be linked to a consumer," that "[d]eidentification addresses whether a record can be traced to a named individual" and "does not address whether the contents of the record are confidential," and that "[t]he privacy architecture of this transaction is consumer-facing; its payload is disproportionately employee-facing." It states that the agreement "not only omits an employee-confidentiality screen, but it functionally forecloses one" [Dkt. 1489].

AFA relies on 11 U.S.C. § 107(b)(1), which it says protects confidential commercial information without regard to identifiability, citing Video Software Dealers Ass'n v. Orion Pictures Corp. (In re Orion Pictures Corp.), 21 F.3d 24, 27-28 (2d Cir. 1994). It states expressly that "AFA does not contend that section 363(b)(1) is triggered here," and cites sections 101(41A), 332 and 363(b)(1) to describe the Code's consumer-directed privacy provisions. It cites Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983) for the business justification standard under section 363(b)(1), and sections 105(a) and 363(e) for the proposition that "[t]he same authority that permits approval permits approval on terms."

AFA's alternative relief asks for a review and segregation protocol directed at confidential employee and labor-related information rather than reliance solely on the removal of consumer identifiers, reasonable measures for employee email, Teams, OneDrive and SharePoint content, a prohibition on using the assets to "analyze, profile, evaluate, score, or draw conclusions regarding any individual Spirit flight attendant or any identifiable group or subgroup," and application of the same restrictions to onward transfers under section 1(c), with notice to AFA of the categories transferred. It states that "[n]one of these conditions requires the Debtors to forgo consideration, to reopen the Auction, or to disturb the Successful Bid," and that deidentification has not yet occurred, the protocol remains to be designed, and the buyer already bears its cost without a reduction in the purchase price.

The estate property filings

Springshot states that a threshold determination in any section 363 sale is whether the property is property of the estate, and that section 10 of its Master Software as a Service Agreement with Spirit Airlines, Inc., dated April 1, 2022, gives it ownership of "any data or information generated by the Service or Software," with Spirit holding "a non-transferable and limited right to use." It states that deidentification does not preserve the value of its ownership because that value "resides in the aggregated operational sequencing for modeling purposes, and the proprietary organization and analysis of that data that is output by Springshot's platform," and that a forensic process would be necessary to identify and segregate its intellectual property from Spirit's operational data. It states that Google "has recently announced its desire to operationalize its own AI platform for airline operations, placing it in direct competition with Springshot," citing an announced five-year partnership between Google and Ryanair [Dkt. 1508].

IAE identifies agreements with the Debtors including five it lists by name, the earliest dated October 1, 2013, states that they are governed by New York law and each contains a confidentiality provision, and offers them for in camera review rather than filing them. It states that the IAE Proprietary Information "is not property of the Debtors' bankruptcy estate and [is] not available for the Debtors to transfer to Google pursuant to Section 363(b)(1)," that deidentification is insufficient because copies, modifications and derivatives appear in internal communications, and that "[g]iven the liquidation of the Debtors' businesses, IAE would have no meaningful remedy from the Debtors for such breach of the confidentiality provisions" [Dkt. 1538].

Several objectors address the same two provisions of the Sale Agreement. Section 1(a)(ii) measures deidentification by whether data can be associated with, used to infer information about, or linked to "a particular consumer." Section 3(c) requires the deidentification agent to work "while preserving referential integrity across the data set."

ALPA states that it has represented Spirit pilots since 1996 and that the collective bargaining agreement approved by the Court on December 29, 2025 "remains in full force and effect under Section 1113(f) of the Code as it has not been rejected under Section 1113" [Dkt. 1558].

The objection identifies three voluntary safety programs whose data it says falls within the operations and team member categories of the asset schedule: the Aviation Safety Action Program, Flight Operations Quality Assurance, and Line Operations Safety Audit. It cites 49 U.S.C. § 40123, which protects voluntarily provided safety and security information from disclosure. It states that the FOQA letter of agreement at paragraph C.4 prohibits disclosure of FOQA program information whether identified or deidentified to "any third party except appropriate government agencies," and that at paragraph B.4 disclosure of crew member identity is cause for ALPA to withdraw its participation and further cause for nullification of the agreement, immediate termination of the FOQA program, and destruction of all data.

ALPA cites FAA Order 8000.82 for the requirement that each ASAP report "must contain sufficiently detailed information about a safety event so that it can be identified by a third party," and gives as an example a flight crewmember report of a deviation from an air traffic control clearance, which would include the date, time, place, altitude, flight number and ATC frequency. Its illustration is a pilot's ASAP report of an improper rate of descent on landing: even if deidentified, it states, "the identity of the pilot(s) involved could easily be determined by examining the supporting information," which "could be expected to have been saved in multiple data sets subject to the Sale Agreement (e.g., email, Teams or SharePoint) and if not found there, included in flight records and pairing information."

ALPA states that because the Sale Agreement requires that referential integrity across the acquired data sets be preserved, "it is almost certain that individual pilots and others will be identifiable from the data." It states that disclosure "can be expected to chill voluntary compliance by pilots across the industry as it becomes known that such data can be sold to third parties with no expertise or interest in aviation safety and presumably included in data bases accessible by the public using artificial intelligence software." It reports that it has engaged in discussions with Spirit and that if those discussions have not concluded, "the Court should consider a further adjournment of the hearing."

On September 3, 2026, micro1 Inc. filed a notice of intent to submit a competing and superior bid [Dkt. 1556]. The notice states a purchase price of $12,500,000 payable entirely in cash from cash on hand, "no financing contingency, no board or investment-committee consent condition," and delivery of proof of funds concurrently with execution. It describes the price as a $2,500,000 or 25 percent premium over the Successful Bid and a $5,000,000 premium over the Alternate Bid.

micro1 describes itself as a Delaware corporation operating "a human-data and intelligence platform for AI training" that "has closed more than fifty data transactions in the last forty-five days," and states that deidentification is an in-house function for it rather than a function outsourced to a third-party Deidentification Agent. It states that it will bear all deidentification costs under section 1(a)(iii) of the Sale Agreement with no price reduction.

The notice offers a set of covenants "to be incorporated as findings and decretal provisions in the Sale Order." They comprise exclusion of disciplinary, investigatory, grievance and arbitration, medical, leave and accommodation, EEO, and union or collective bargaining material, with a section 3(e) carve-out and an advance waiver of any price adjustment, walk right, material adverse effect claim, indemnity claim or section 6(a) title representation claim; a prohibition on re-association "not limited to intentional association," with affirmative technical controls; a prohibition on profiling, scoring, evaluating or drawing conclusions about any individual Spirit employee or identifiable subgroup; onward transfer limited to named AI laboratory customers, with a prohibition on transfers of employment-related material to airlines, airline services companies, staffing or background check providers, people analytics vendors or labor relations consultancies, and a provision that "[t]he Assets shall not be sold or transferred to any Chinese entity"; a Data Review Ombudsman selected by the Debtors, reasonably acceptable to the objecting parties and approved by the Court, receiving a sample of one percent of the deidentified assets before any onward transfer at micro1's cost; United States data residency with staged delivery into a segregated, access-logged environment and destruction of raw employment records following processing; an advance waiver of claims arising from removed data; a field-of-use restriction addressed to Springshot, enforceable through a direct stipulation providing for injunctive relief with notice and cure; and free access to micro1's AI training and re-skilling curriculum plus preferential consideration for paid annotation and data transformation work for former Spirit employees.

Procedurally, the notice quotes the Bidding Procedures' reservation of the Debtors' authority to extend deadlines, waive terms and conditions, and modify the procedures, and their right "to deem a bid a Qualified Bid even if such bid does not conform to one or more of the requirements," and cites Lionel. It asked the Court to consider the bid at the then-scheduled September 9, 2026 sale hearing. The docket reflects no response by the Debtors to the notice through September 11.

Each notice states that the objection deadline of 4:00 p.m. on August 17, 2026 has passed. None sets a new objection deadline. Dkt. 1557 set a reply deadline of 12:00 p.m. on September 14, 2026; Dkt. 1601 set a reply deadline of 12:00 p.m. on September 28, 2026 and eCourt appearances by 11:00 a.m. on September 29, 2026.

The sale hearing is scheduled for 11:00 a.m. on September 30, 2026 before Judge Lane, with a reply deadline of 12:00 p.m. on September 28 [Dkt. 1601]. The docket through ECF No. 1601 reflects the following.

No order approving the sale has been entered. The six objections and joinders remain on file, and the September 11 notice states that the Debtors "continue to work constructively with objecting parties in an effort to resolve objections consensually."

The ombudsman's Attachment A, described in the report as containing the final list of recommended conditions, has not been filed [Dkt. 1581]. The report states that the Debtors are in the process of identifying a deidentification vendor and that the ombudsman requests an opportunity to learn the standards that vendor plans to follow once it is selected.

Google's stated supplement to its preliminary response and its response to the objections have not been filed [Dkt. 1594]. Five datasets identified in that response have been removed from the scope of the transaction, and the docket reflects no corresponding change to the $10,000,000 purchase price.

The Debtors have not responded on the docket to micro1's notice of intent to submit a competing bid of $12,500,000 [Dkt. 1556], and no amended notice of auction results or revised successful bidder designation has been filed.

The proposed sale order on file remains the version filed August 17, 2026, which contains no privacy conditions, use restrictions, re-identification prohibition, certification to the Court or reporting obligation in its decretal paragraphs [Dkt. 1469].

On September 8, 2026, the Official Committee of Unsecured Creditors in In re Camp Mystic, LLC filed a 46-page motion under section 1104(a) of the Bankruptcy Code asking Judge Christopher Lopez to appoint a chapter 11 trustee over all four debtors. The motion carries ten attachments, including transcripts of the July 9 and August 26 meetings of creditors, the Texas Legislature's June 2026 report on the flood disaster, the Travis County temporary injunction, and a plaintiffs' sanctions motion from the state court litigation.

Three more filings were entered the same day. The Certain Heaven's 27 Families, a group of twenty-four of the twenty-six families who lost a child or a counselor at Camp Mystic on July 4, 2025, filed a preliminary objection to the debtors' competing governance motion and then a joinder adopting the trustee motion in full. Lacy and John Lawrence, the one family that lost two daughters, filed their own joinder through Akin Gump.

Objections to the trustee motion are due twenty-one days from filing, which puts the deadline at September 29. The debtors have not yet responded. The Court set a hybrid evidentiary hearing for October 9 on the stay motions and on the debtors' governance motion. A virtual status conference is set for September 23.

The motion's preliminary statement asserts that the cases "will not move forward so long as the Eastland Directors are deciding where they will go," and that the debtors "have no reorganization strategy, no plan, and, by their own chief restructuring officer's testimony, have had no discussions about how to reorganize at all."

The events recited in the trustee motion and in the related filings run from the July 4, 2025 flood through the filings of September 8, 2026.

All four debtors sit under a single family holding structure. Mystic Camps Family Partnership, Ltd. owns one hundred percent of Camp Mystic, LLC, which operated the camp, and one hundred percent of Natural Fountains Properties, Inc., which owns the 725-acre ranch and the improvements on it. The partnership's general partner is Mystic Camps Management, LLC, whose sole member is Willetta "Tweety" Eastland. The limited partnership interests are held by Eastland family members and by the Caroline K. Eastland 2023 Trust and the Anna A. Eastland 2023 Trust.

Governance of all four debtors is held by four members of the Eastland family, each of whom held an operational role at the camp before the flood. The Committee refers to them as the Eastland Directors.

The individual defendants in the state court actions are Willetta Eastland, Edward Eastland, Mary Liz Eastland, George "Britt" Eastland in his capacity as representative of Dick Eastland's estate, and NFP president William Neely Bonner III. Each of the Eastland Directors, along with Dick Eastland's estate, appears in the debtors' schedules as the holder of an undisputed indemnification claim against Camp Mystic, LLC, Natural Fountains Properties, and MC Management. Two other Eastland trusts hold scheduled promissory note claims against Natural Fountains Properties of $1,376,789.04 and $423,627.40.

Karen Nicolaou of Harney Partners was approved as chief restructuring officer on August 18, and the retention order provides that no principal, employee, or independent contractor of Harney Partners and its affiliates may serve as a director of any debtor during the cases. At the section 341 meeting she testified that she consults with debtors' counsel, who in turn take direction from the board of managers of each entity, and that she could not make a decision over the board's objection.

Two of the motion's background sections rest on the Texas Legislature Report, which the Committee attaches as Exhibit B. The Committee asks the Court to take judicial notice of the report, and argues separately that its factual findings are admissible for their truth under the public records exception in Federal Rule of Evidence 803(8), citing United States v. Gluk, 831 F.3d 608, 613-14 (5th Cir. 2016). The motion then quotes all twenty of the report's conclusions verbatim and organizes them under the four headings the legislative committees used.

The report's conclusions include the following. Camp Mystic had no written emergency plan specifying how each occupied building would be evacuated in a flood, and the written plan it did have instructed campers to shelter in place and await instruction. Evacuation procedures were never reviewed with staff and counselors, and specific responsibilities were never assigned. Campers were never instructed on how a flood evacuation would occur.

On the night itself, the National Weather Service upgraded a flood watch to a flash flood warning at 1:14 a.m., naming Hunt as a location that would experience flash flooding. Multiple members of the Eastland family received the alert. No evacuation began until roughly 3:00 a.m. The report concludes that if all campers had been instructed to evacuate their cabins on foot at that hour or earlier, there was ample time and opportunity for all of them to reach higher ground safely. Camp leadership did not call 911 during the flood or immediately afterward.

The motion also recounts the aftermath. At 11:28 a.m. on July 4, the camp emailed parents that "[i]f you have not been personally contacted then your daughter is accounted for." The legislative report found that this email "provided false hope to families who had not yet been called, only to be told later that their daughter was missing." Later that afternoon the camp directed parents to Ingram Elementary, where, the report found, no person or agency took control and parents of missing campers waited alongside parents reuniting with their children.

Texas responded with three statutes signed on September 5, 2025: the Youth CAMPER Act, the Heaven's 27 Camp Safety Act, and Senate Bill 3, which amends the Water Code and Government Code to require flood warning sirens in flash flood-prone areas.

The Committee attaches the August 26 transcript as Exhibit A and the transcript of the July 9 meeting as Exhibit H. The motion cites the August 26 record more than thirty times. It relies on six areas of testimony.

The first concerns authority. Asked whether she could make decisions for the debtors over the board's objection, the chief restructuring officer testified that she could not, because "they're the board." She consults counsel, counsel takes direction from the managers, and the managers are the four Eastland Directors.

The second concerns strategy. She testified that the debtors have had no conversations with her about a plan to reorganize, that she has not discussed with the Eastland Directors whether the debtors intend to seek a future operating license, and that to her knowledge there are no plans to apply for one. When she was asked what the path forward looks like, debtors' counsel stepped in and acknowledged that "at this point, it's difficult to articulate."

The third concerns a $400,000 flood insurance payment the debtors received. The chief restructuring officer testified that she does not have a copy of the underlying policy and that the debtors do not understand the circumstances of it.

The fourth concerns the property. She testified that there is no process for tracking who enters or visits the 725-acre site, that there is no signage identifying the portion subject to the prepetition injunction, and that sixty-four horses currently roam and graze there. Access is controlled by members of the Eastland family and by employees.

The fifth concerns document preservation. The motion notes the five pending wrongful death suits, a spoliation allegation, and an open criminal investigation, and states that she could not identify what steps the debtors have taken to preserve documents and evidence relating to the flood.

The sixth concerns payroll. The debtors employ nine people, including four in camp maintenance, one in horse training and breeding, one in groundskeeping, two in office administration, and one media consultant, at a camp with no operations and no plan to reopen. The Committee notes that at least one employee's duties include administrative work for Edward Eastland, a fact the motion traces to cross-examination at the July 9 hearing rather than to the chief restructuring officer's declaration.

"The Debtors employ these individuals notwithstanding that they have no current operations nor any plans to reopen in the foreseeable future." Committee motion for appointment of a chapter 11 trustee, Dkt. 227 at 23

The debtors filed their schedules and statements of financial affairs on August 7. Collective assets are scheduled at roughly $20 million, most of it the property. The July monthly operating reports show aggregate month-end cash across the four debtors of about $4.8 million, of which $3.16 million sits at Natural Fountains Properties, $1.44 million at Camp Mystic, LLC, $237,576 at MC Family Partnership, and nothing at MC Management. Six insurance policies are disclosed. They include a general liability policy and an excess policy with a $5 million limit.

The statements of financial affairs disclose transfers to seven members of the Eastland family in the year before the petition date.

The global notes to the schedules disclose additional value received by the Eastland family. Members of the Eastland family occupy houses on estate property, use debtor vehicles, and have historically had basic living expenses paid by the debtors, including utilities, gasoline, cable, and internet. George Eastland and his family have occupied a house at Camp Mystic since 2015, Edward Eastland and his family moved into a manufactured house at the camp in June 2026 after their own home was damaged in the flood, and Willetta Eastland has been living in the camp infirmary since the fall of 2025. The debtors marked the value attributed to that use as undetermined.

The monthly operating reports show that family members are reimbursing the estates for electricity. The Committee's review found no comparable reimbursement for rent, vehicle use, or other living expenses. Camp Mystic's July report reflects $27,222 in total receipts for the period ending July 31, of which $2,305 is family expense reimbursement.

The Committee advances three theories of cause.

Incompetence and gross mismanagement

The statutory text reaches mismanagement "either before or after the commencement of the case," and the Committee cites In re Sharon Steel Corp., 871 F.2d 1217, 1227 (3d Cir. 1989), for the proposition that current management must be free of the taint of prior management. The motion states that, except for Dick Eastland, the same senior family members who ran the camp before the flood govern the debtors today, and that the Eastland Directors reviewed and signed off on the schedules and statements collectively before filing.

The postpetition conduct is pleaded as a continuation of the same pattern. The Committee groups it under self-dealing, failure to protect estate property, unfamiliarity with a major estate asset, the absence of any reorganization discussion, and a payroll that serves no operating business. A footnote cites Woodlawn Community Development Corp., 613 B.R. 671, 684-85, for the point that failure to collect rent supports both incompetence and a self-dealing finding that is itself independent cause.

Irreconcilable conflicts

The motion argues that conflicts of interest can constitute cause independently, citing In re Cajun Electric Power Cooperative, Inc., 74 F.3d 599 (5th Cir. 1996), along with In re Westbank Holdings, LLC and In re Patman Drilling International, Inc. from within the circuit. It identifies five respects in which it contends the directors' interests and the estates' interests diverge: co-defendant status in the state court actions, indemnification and trust claims against the estates, a financial and residential interest in the property, exposure to a criminal investigation the Committee says could expand beyond the corporate debtor, and potential estate claims for breach of fiduciary duty against the directors.

On the last point the motion quotes In re Sillerman, 605 B.R. 631, 647 (Bankr. S.D.N.Y. 2019), on the difficulty of tasking a debtor with bringing avoidance actions against a family member, and In re Russell, 60 B.R. 42, 48 (Bankr. W.D. Ark. 1985), for the proposition that it is unreasonable to suppose a debtor in possession would choose to sue itself. The chief restructuring officer testified that she has not evaluated any potential estate claims against the debtors' fiduciaries.

Acrimony

The third theory rests on In re Marvel Entertainment Group, Inc., 140 F.3d 463, 472-74 (3d Cir. 1998), where deep-seated conflict and animosity between a debtor in possession and its creditors supported a trustee, and on In re Stream TV Networks, Inc., 2024 WL 87639, at *33-34 (Bankr. E.D. Pa. Jan. 5, 2024). The Committee identifies the sources of acrimony as recruiting families for the 2026 season within three months of the flood, litigating against the prepetition injunction, withholding discovery, and conduct by defense counsel in the state court that drew a sanctions motion alleging, among other things, a statement in open court that plaintiffs' counsel were "going to burn in hell."

The Committee served informal requests on August 5 and Rule 2004 discovery on August 24. Its motion reports that the debtors have produced fewer than 500 documents, more than half of which are publicly available.

Section 1104(a)(2) provides an independent basis for appointment that does not require a finding of cause. The motion works through the four-factor balancing used in In re Ford Steel, LLC, 629 B.R. 871, 889-90 (Bankr. S.D. Tex. 2021), and applied in Sillerman, Westbank Holdings, and In re Eletson Holdings Inc., 659 B.R. 426, 453-54 (Bankr. S.D.N.Y. 2024).

On the fourth factor, the motion addresses cost directly. Willkie Farr & Gallagher, Lawson & Moshenberg, and FTI Consulting have each agreed to serve pro bono, as stated in their retention applications filed September 4. The Committee states that it has already approached potential trustee candidates and replacement counsel willing to work on a low or no-cost basis, and that it would work with a trustee immediately on plan structures and asset monetization.

The motion also addresses the number of trustees. Under Bankruptcy Rule 2009(c)(2) a common trustee may be appointed for jointly administered estates, and the Committee argues that only one is needed here, citing Ritchie Special Credit Investments, Ltd. v. U.S. Trustee, 620 F.3d 847, 854-55 (8th Cir. 2010).

One week before the trustee motion, the debtors filed their own governance motion under sections 105(a), 363, 1107(a), and 1108, together with provisions of the Texas Business Organizations Code. It would appoint Mark Andrews of Trinity River Advisors as independent manager of Camp Mystic, LLC and the Hon. Craig A. Gargotta, until earlier this year the Chief Bankruptcy Judge for the Western District of Texas, as independent director of NFP. Each would constitute a one-person special committee. Judge Gargotta would serve without compensation. Mr. Andrews would be paid $15,000 per month.

The motion states that the existing structure "invites doubt" about the debtors' decision-making given that the managers and directors are both co-defendants in wrongful death actions and claimants asserting indemnification rights against the estates, and that the independent fiduciaries "remove that doubt."

The motion gives the ground lease as the reason for appointing two fiduciaries rather than one. Camp Mystic, LLC is the tenant under a June 1, 1998 ground and building lease with NFP as landlord. The motion states that decisions about rent adequacy, continuation of the post-flood rent abatement, lease assumption or rejection, and any disposition of the property require adverse advocacy on behalf of each entity, and that a single fiduciary serving both cannot provide it.

The proposed order allocates authority as follows.

The proposed order includes several additional provisions. Neither fiduciary may be removed and the governance amendments may not be rescinded without a further order of the Court. Matters affecting more than one debtor require both fiduciaries acting jointly. Any impasse between a special committee and a full board over a recommended sale, settlement, or plan filing must be disclosed to the Court, the Committee, and the U.S. Trustee within seven days. Quarterly reports would cover delegated matters, intercompany transactions, and the progress of any insider claim investigation.

The Families' preliminary objection runs six pages, and its argument is statutory. Its lead authority is In re Adelphia Communications Corp., 336 B.R. 610, 664 (Bankr. S.D.N.Y. 2006), where Judge Gerber declined to use section 105(a) to install a fiduciary who would function as a trustee in substance. The objection quotes the passage warning against using section 105(a) to create substantive rights otherwise unavailable and to invent remedies that overstep statutory limitations, and pairs it with the Fifth Circuit's formulation in United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986), that section 105(a) is not a roving commission to do equity. More recent circuit and district authority follows, including In re Highland Capital Management, L.P., 132 F.4th 353, 358 (5th Cir. 2025).

The objection's second argument concerns the reserved authority. It contends that the three decisions left with the full boards are the decisions that will resolve these cases, and that each is one in which every board member is personally interested. The objection asks how the Eastlands can have the final say on settling claims against themselves, on selling property in which they hold an economic interest and on which they are living without paying rent, and on filing a plan that must address both. It answers: "they cannot and should not."

The objection identifies two items it says the motion omits. It does not describe how an impasse between the appointees and existing management gets resolved, and it does not disclose the cost of the directors and officers coverage the debtors propose to buy at estate expense. The existing package policy contains no directors and officers liability part, and the debtors ask for authority to bind coverage, including Side A-only coverage, before service begins.

The objection also addresses the debtors' supporting precedent. The debtors cite In re Instant Brands Acquisition Holdings Inc. and Highland, both of which concern plan exculpation for estate fiduciaries exercising trustee-like functions. The Families call the analogy a stretch too far and note that the debtors identify no case, in this district or anywhere, where management conflicts were cured by the postpetition appointment of independent directors over the objection of the principal parties in interest.

All three creditor filings of September 8 took the same position. The Lawrence joinder, filed through Akin Gump, argues that the debtors have spent more than two months protecting insiders from prepetition suits, including by seeking to extend the automatic stay for their benefit. The Families' joinder adopts the trustee motion, their stay relief motion, and their governance objection together, and asks the Court to direct the U.S. Trustee to appoint a trustee forthwith. As of September 13, 2026, no party has filed in support of the debtors' governance motion.

Two other contested matters are set for the October 9 hearing. The Families moved on August 31 to modify the stay so the five state court actions can proceed to final judgment against both the debtors and the individual defendants, and so the two families who have not yet sued can file. The motion seeks liquidation rather than collection, and proposes that the families return to the bankruptcy court to collect on any judgment.

The motion's principal theory is bad faith under In re Little Creek Development Co., 779 F.2d 1068, 1072 (5th Cir. 1986), which permits a court to look at whether a filing is intended to achieve reprehensible purposes. The motion argues that these cases were filed to gain tactical advantage in the state court actions on the eve of rulings on sanctions and arbitration, and it supports that with the removal on July 13 ahead of a July 15 Travis County status conference, the venue transfer motion two days later, and the adversary proceeding on August 5. The Sonnax factors are argued in the alternative, including the point that the bankruptcy court cannot liquidate personal injury tort claims under 28 U.S.C. section 157(b)(2)(B) and (b)(5).

The debtors' adversary proceeding seeks a declaration that the automatic stay reaches the non-debtor Eastland defendants, together with a preliminary injunction to the same effect. The agreed scheduling order Judge Lopez signed on September 1 governs all of these matters, and the parties resolved the protective order question by stipulation on September 11.

The general bar date of September 18 precedes the October 9 hearing by three weeks. The Families assert in their stay relief motion that, as reflected in the debtors' schedules, there are no significant non-insider claims against the estates other than their own. The Internal Revenue Service filed a proof of claim on September 10, 2026.

Three contested matters are set for hearing on October 9, 2026. The trustee motion is on a separate track, with objections due September 29, 2026 and no hearing date set as of September 13, 2026.

The first issue is statutory. The debtors seek their governance structure under sections 105(a), 363, 1107(a), and 1108 of the Bankruptcy Code, together with sections 21.403, 101.052, and 101.356 through 101.359 of the Texas Business Organizations Code. The Families argue that section 105(a) cannot authorize the appointment of a fiduciary that functions as a trustee in substance, citing Adelphia, Sutton, and Highland Capital. The debtors' cited authority on the appointment question consists of Instant Brands and Highland Capital, both of which address plan exculpation for estate fiduciaries exercising trustee-like functions. The Families state that the debtors cite no case in which management conflicts were addressed by the postpetition appointment of independent directors.

The second issue is evidentiary. The Committee's cause theory rests on testimony that the debtors have no reorganization strategy, no plan to seek an operating license, no identified document preservation steps, and no evaluation of estate claims against their own fiduciaries. Depositions of the debtors' corporate representatives are to be completed by September 28, and the debtors' reply brief on the stay motions is due October 2.

The third issue concerns the relationship between the two operating debtors. The debtors state that the 1998 ground lease between Natural Fountains Properties and Camp Mystic, LLC, the rent abatement in place between the flood and the petition date, and the July 5, 2025 lease amendment deferring rent require a separate fiduciary for each entity. The Committee requests a single trustee across all four estates under Bankruptcy Rule 2009(c)(2), citing Ritchie Special Credit Investments.

As of September 13, 2026, the debtors have not filed a response to the trustee motion, and the Committee has not filed its stated objection to the governance motion.

On September 9 and 10, 2026, Judge Gregory B. Williams of the United States District Court for the District of Delaware signed opinions in two separate appeals taken from the same order, both docketed in the chapter 11 cases on September 10. Both affirmed. The order under review was the September 12, 2025 findings of fact, conclusions of law, and order confirming the Second Amended Combined Disclosure Statement and Chapter 11 Plan of Liquidation of Nikola Corporation and its Debtor Affiliates, entered at Bankr. D.I. 1036.

The first appeal, taken by the founder and former chief executive officer, challenged the equitable subordination of his roughly $69.8 million general unsecured indemnification claim under section 510(c), along with the plan provisions stripping his asserted setoff and recoupment rights. The second, taken by the co-lead plaintiffs in the Arizona securities class action, challenged the classification of the class claim in the plan's section 510(b) class on the ground that the debtors were required to file a Bankruptcy Rule 3007 claim objection before any subordination could occur. No party requested oral argument in either appeal.

The two opinions address different statutory provisions and reach their results on different grounds. In both, subordination was accomplished through plan confirmation. The class plaintiffs challenged that procedure directly, and the district court rejected the challenge. Milton raised a related procedural objection in the bankruptcy court, arguing that subordination had to be resolved in an adversary proceeding where he could testify, and on appeal limited his challenge to the first element of the equitable subordination test.

The debtors filed voluntary chapter 11 petitions in Delaware on February 19, 2025. What followed on the claims side was a sequence of stand-alone classification briefs, filed in advance of the objection deadline, each addressed to one disputed claim. The debtors filed a memorandum on classification of the SEC claim under section 510(b) on July 25, 2025 (D.I. 796), a memorandum on the Reyes action claim under section 510(b) on July 28 (D.I. 804), a sealed memorandum on the founder's claim under section 510(c) on July 29 (D.I. 808, redacted version at D.I. 824), and a memorandum on classification of the shareholder securities litigation claim under section 510(b) on August 1 (D.I. 820). The debtors' memorandum on the shareholder securities litigation claim landed nineteen days before plan objections were due and more than a month before the evidentiary hearing.

Objections arrived between August 19 and August 26, 2025 from the founder, the class plaintiffs, the United States Trustee, the Securities and Exchange Commission, individual equity holders, and a lessor. The founder filed both a general plan objection (D.I. 910) and an opposition directed at the section 510(c) classification memorandum (D.I. 911), then withdrew the general objection on September 4 (D.I. 989). The class plaintiffs filed a limited objection and reservation of rights (D.I. 909) resting solely on procedure. Their objection did not dispute the substance of the debtors' section 510(b) argument, did not take issue with the proposed Class 7 treatment language, and did not contest the underlying facts of the securities litigation or the nature of the damages asserted in the class claim.

The bankruptcy court held a contested evidentiary hearing on September 5, 2025 and ruled from the bench. The confirmation order followed a week later. The class plaintiffs filed their notice of appeal the same day the order was entered; the founder filed his thirteen days after that. The plan went effective on December 12, 2025, roughly nine months before either appeal was decided.

The claim at issue in Civ. No. 25-1194 was a proof of claim for $69,758,064.15, asserted as a general unsecured claim for legal fees purportedly owed under separation and indemnification agreements. The claim form also asserted that the amount could be used as a setoff against what its holder owed Nikola under the arbitration award. The debtors requested the supporting invoices. None were produced.

Nikola advanced approximately $36.8 million in legal fees before it began contesting the reasonableness of the requests. Arbitration over a $32 million invoice from a major law firm followed, of which roughly $14 million had already been paid, leaving $18 million in dispute. In February 2022 the panel found $17.2 million of that $18 million unreasonable.

Nikola commenced a separate arbitration against its former chief executive. After an eight-day hearing in July and August 2023, a three-arbitrator panel concluded on November 17, 2023 that he had violated his fiduciary duties of loyalty and good faith through a pattern of false and misleading public statements about the company's products and the state of their development, and by subordinating the company's interests to his own in refusing all efforts to review and approve his public statements in advance. The panel stated expressly that the criminal conviction "has not been considered or given any substantive weight" in that finding. Damages included the $125 million SEC penalty and millions in legal fees and expenses, with 97 percent of the total allocated to him after a comparative fault analysis. One arbitrator dissented, disagreeing only about how much fault should be attributed to Nikola, and agreed that the fiduciary breaches had been proven.

On appeal, the dissent was offered as evidence that the award lacked the firmness issue preclusion requires. The district court rejected that argument in a single sentence.

The Third Circuit applies a three-element test for equitable subordination: inequitable conduct by the claimant, resulting injury to creditors or unfair advantage to the claimant, and consistency with the provisions of the Bankruptcy Code. Citicorp Venture Cap., Ltd. v. Comm. of Creditors Holding Unsecured Claims, 160 F.3d 982, 986-87 (3d Cir. 1998). Where the claimant is an insider, the showing on the first element drops: inequitable conduct may be proven by showing illegal or fraudulent conduct, or a breach of fiduciary duties owed to the debtor, stockholders, or creditors. In re Mid-Am. Waste Sys., Inc., 284 B.R. 53, 69-70 (Bankr. D. Del. 2002); In re Zohar III, Corp., 639 B.R. 73, 91 (Bankr. D. Del. 2022).

The appeal contested only the first element. Insider status went undisputed, as did injury and consistency with the Code.

Once the District of Arizona confirmed the award, it became a judgment of the court entitled to "the same force and effect . . . as . . . a judgment in any other action," and carried the force of collateral estoppel. Teamsters Loc. 177 v. United Parcel Serv., 966 F.3d 245, 251 (3d Cir. 2021); Witkowski v. Welch, 173 F.3d 192, 198-99 (3d Cir. 1999). The district court described the bankruptcy court's application of that doctrine as "a textbook application of preclusion principles."

The argument that the award was not final because a Ninth Circuit appeal remained pending at the time of the confirmation hearing failed on two independent grounds. It had been forfeited below, where counsel never challenged the preclusive effect of the award and offered no response when debtors' counsel raised the point preemptively at the confirmation hearing. It was also wrong. "The pendency of an appeal does not affect the potential for res judicata flowing from an otherwise-valid judgment." United States v. 5 Unlabeled Boxes, 572 F.3d 169, 175 (3d Cir. 2009); see also O'Leary v. Liberty Mut. Ins. Co., 923 F.2d 1062, 1066 n.6 (3d Cir. 1991). The Ninth Circuit had in any event affirmed by the time the appeal was decided.

Civ. No. 25-1194 presented the question whether a presidential pardon bars a bankruptcy court from relying on findings of misconduct when it subordinates a claim. In the bankruptcy court, the argument was that the pardon rendered its recipient "innocent of any wrongdoing" and established factual innocence through "the President's unreviewable determination." On appeal it acquired a constitutional wrapper: that separation of powers required deference to the President's judgment that he had done nothing wrong.

The bankruptcy court had questioned the premise at the hearing, observing that the pardon said nothing on its face about innocence and that there was no need to consult extrinsic evidence such as the President's oral remarks when the written instrument was clear.

On appeal the argument failed on the merits, without any need to reach whether the Federal Arbitration Act would even permit that sort of collateral attack on a confirmed award. A pardon cannot "relieve the wrongdoer from civil liability." Angle v. Chi., St. Paul, Minneapolis & Omaha Ry. Co., 151 U.S. 1, 19 (1894). It may relieve a defendant from federal criminal punishment, but it "cannot stop" civil liability that is merely remedial and for the benefit of the complainant. Ex parte Grossman, 267 U.S. 87, 111 (1925). Counsel had conceded at the confirmation hearing that a pardon "doesn't get you out of civil liability."

The district court rejected the deference argument. If pardons could dictate facts in civil proceedings such as bankruptcy, they would necessarily extend to civil liability, which Angle forbids, and would shield defendants from liability in purely remedial contexts like the equitable subordination of claims, which operates for the benefit of private parties. A separate and narrower ground reinforced the holding. The arbitration award rested on breaches of fiduciary duty and false statements, conduct that does not necessarily constitute a criminal offense, so even a pardon read to mean no criminal fraud occurred would leave the basis for the award intact.

Because no further evidence of inequitable conduct was needed, the district court declined to reach the additional arguments about whether the pardoned conviction supplied independent evidence of inequitable conduct.

The plan precluded the claimant from asserting any right of setoff, subrogation, or recoupment against obligations he owed the estate, including the money owed under the arbitration award. On appeal he argued that section 553 preserved those rights and barred their elimination, and that eliminating them without just compensation effected an unconstitutional taking.

Neither argument had been presented to the bankruptcy court. The debtors' subordination brief had made the specific argument that setoff rights may be denied on a showing of inequitable conduct, citing the caselaw and explaining why relief was permitted under section 553. No contrary argument came back. At the confirmation hearing, counsel conceded that "if the [c]ourt equitably subordinates his claim, [then] that setoff, that recoupment is gone." The district court treated that concession as intentional relinquishment rather than mere forfeiture, and waived claims may not be resurrected on appeal. Barna v. Bd. of Sch. Dirs. of Panther Valley Sch. Dist., 877 F.3d at 146-47 (3d Cir. 2017). The takings argument drew no separate relinquishment holding. The court noted only that it had not been presented to the bankruptcy court, then addressed it on the merits anyway.

Setting waiver aside, the court addressed the merits and reached the same result. Section 553 does not independently create setoff rights; it incorporates and preserves the common-law right of setoff arising out of non-bankruptcy law. United States ex rel. IRS v. Norton, 717 F.2d 767, 772 (3d Cir. 1983). Because that common-law right is an equitable one, it can be lost when the claimant engages in inequitable conduct, and section 553 carried that qualification along with it when it incorporated the right. In re Commc'n Dynamics, Inc., 382 B.R. 219, 226-28 (Bankr. D. Del. 2008) (setoff); In re Am. Home Mortg. Holdings, Inc., 401 B.R. 653, 655-56 (D. Del. 2009) (recoupment).

The recoupment claim failed for an independent reason. Recoupment is a strict and narrow doctrine that applies only where both debts arise out of a single integrated transaction. In re Univ. Med. Ctr., 973 F.2d 1065, 1081 (3d Cir. 1992). The indemnification claim arose from the separation and indemnification agreements. The debt to Nikola arose from false statements made to the public. A logical relationship between the two would not be enough; recoupment requires an identical transaction, and the linkage was absent. Id. at 1080.

On takings, the district court applied the prospectivity rule. Bankruptcy laws do not effect a taking when they are imposed before the property interest arises. In re Thompson, 867 F.2d 416, 422 (7th Cir. 1989); In re Weinstein, 164 F.3d 677, 686 (1st Cir. 1999); In re Thaw, 769 F.3d 366, 370-72 (5th Cir. 2014). The putative setoff rights here were acquired decades after enactment of the Bankruptcy Code, which had already incorporated the common-law rule that setoff rights can be extinguished for inequitable conduct.

The co-lead class plaintiffs in Borteanu v. Nikola Corp., No. 2:20-cv-01797-SPL (D. Ariz.), had reached a prepetition settlement with Nikola, memorialized in a term sheet executed on January 28, 2025, under which the class was to receive $13,000,000 in cash payments and certain other consideration. Nikola agreed that if it filed for bankruptcy it would seek approval of the settlement under Bankruptcy Rule 9019. Three weeks later it filed. The first-day declaration represented that a Rule 9019 motion would be filed in due course and that the plan would distribute the settlement consideration.

The schedules filed on March 19, 2025 listed the settlement as a contingent, unliquidated, and disputed unsecured claim. The class filed Claim No. 10257 asserting an unliquidated claim of "not less than $13,000,000" based on the term sheet. The plan placed claims and interests into eight classes and created Class 7 for section 510(b) and other junior claims, a class that does not share pro rata with the Class 3 general unsecured creditors and that receives no distribution because senior classes will not be paid in full.

The appellate theory was procedural rather than substantive. The class argued that because their claim enjoyed prima facie validity under section 502(a), the debtors were required to file a claim objection under Bankruptcy Rule 3007, and that subordination could not be accomplished through the plan. Their objection put it plainly: "Assuming arguendo that the Class Claim could be subordinated, the Debtors' Plan is not the proper procedural mechanism to adjudicate that issue."

The district court found the core premise incorrect. Subordination under section 510(b) concerns priority and treatment, and it presupposes allowance. By its terms, section 510(b) applies only to a claim "allowed under section 502." When the bankruptcy court concluded that the class claim was properly subordinated under section 510(b), it necessarily treated the claim as allowed. In re Bayou Grp., LLC, 372 B.R. 661, 666 (Bankr. S.D.N.Y. 2007); Kaiser Grp. Int'l, Inc. v. Pippin (In re Kaiser Grp. Int'l, Inc.), 326 B.R. 265, 268 (D. Del. 2005).

The appeal also turned on the plan language itself. On the effective date, all section 510(b) claims were "deemed automatically cancelled, released, and extinguished." The appellants argued that this operated as disallowance without the procedural protections a claim objection would supply.

The district court noted that the appellants cited no authority holding that this language, found in numerous confirmed chapter 11 plans, constitutes claim disallowance under section 502. The opinion cites four confirmed plans using materially identical phrasing: In re Silvergate Capital Corp., No. 24-12158 (Bankr. D. Del. Nov. 13, 2025), In re SVB Financial Group, No. 23-10367 (Bankr. S.D.N.Y. Aug. 2, 2024), In re Celsius Network LLC, No. 22-10964 (Bankr. S.D.N.Y. Nov. 9, 2023), and In re Charming Charlie Holdings Inc., No. 17-12906 (Bankr. D. Del. Dec. 22, 2017).

The phrase reflects the distributional consequence of subordination in an insolvent estate. A subordinated claim, like equity, receives nothing unless all senior claims are paid in full. Where the estate is insolvent, the practical effect of subordination may resemble disallowance because neither subordinated claims nor equity receive anything, and the claim nonetheless remains allowed. In re Bayou Grp., LLC, 439 B.R. 284, 300 (S.D.N.Y. 2010).

The opinion then set out the statutory structure. Disallowed claims are precluded from receiving distributions. Subordinated claims remain allowed and are assigned the lowest priority. Section 510(b) requires claims for damages arising from the sale of the debtor's securities to share "the same priority as" the underlying equity, and the Nikola plan implemented that mandate by according Class 7 the same treatment as the Class 5 equity interests. Both were cancelled on the effective date because, given the debtors' insolvency, neither was entitled to a distribution unless all senior creditor classes were paid in full. No evidence at confirmation suggested they would be. See Gaff v. FDIC, 919 F.2d 384, 394 (6th Cir. 1990) (rescission claims subject to section 510(b) "are not disallowed. They are merely moved to the last set of priorities").

The holding described in this section comes from the class plaintiffs' appeal. Milton raised a related procedural objection in the bankruptcy court, arguing that subordination of his claim had to be resolved in an adversary proceeding where he could testify, and did not carry it forward. Civ. No. 25-1194 contains no ruling on the question.

Bankruptcy Rule 7001(h) requires an adversary proceeding to subordinate an allowed claim or interest, "except when subordination is provided in a Chapter 9, 11, 12, or 13 plan." The district court applied the exception as written. There are two procedural paths to subordination, and the district court held that the Rules impose no third requirement of the kind the appellants proposed.

Rule 3007 governs objections to the allowance of claims under section 502. It does not apply where the debtor leaves the claim's allowance status untouched and invokes section 510(b)'s mandatory priority instead. In re Wash. Mut., Inc., 462 B.R. 137, 145 (Bankr. D. Del. 2011); In re Trib. Co., 472 B.R. 223, 228 (Bankr. D. Del. 2012); In re Best Prods. Co., 168 B.R. 35, 39 (Bankr. S.D.N.Y. 1994). Rule 3007(b) itself provides that a party objecting to a claim must not include a demand for relief specified in Rule 7001, which points back to the adversary-proceeding or plan alternatives.

The opinion also addressed redundancy. Once the debtors filed a plan calling for subordination of the class claim, the class objected to the plan, triggering a contested matter under Rule 3020(b) to litigate exactly that question. On the appellants' proposed rule, the debtors would also have been obligated to file a claim objection asserting subordination, initiating a second contested matter to litigate the same issue already in dispute.

The court distinguished the lien cases the class relied on, which arise under Rule 7001(b) and contain no exception for chapter 11 plans. SLW Capital, LLC v. Mansaray-Ruffin (In re Mansaray-Ruffin), 530 F.3d 230, 237 (3d Cir. 2008). Rule 7001(h) does contain one.

The bankruptcy court never ruled on the debtors' disallowance arguments. Because equitable subordination rendered the founder's claim incapable of receiving a distribution, allowance became unnecessary, and the parties appeared to agree at the hearing that subordination was a dispositive gating issue. Several claim-side matters remained pending during the appeal.

The debtors filed a supplemental objection to the claim on October 23, 2025 (D.I. 1212) and served document requests and interrogatories the same day (D.I. 1213). The claimant responded with a motion to dismiss the supplemental objection for want of jurisdiction (D.I. 1295) and a motion for a protective order forbidding the discovery (D.I. 1310), supported by a memorandum of law (D.I. 1311). On December 22, 2025, the bankruptcy court approved a stipulation extending the response deadline on both motions to thirty days following entry of a final order in the appeal of the confirmation order. The stipulation was certified at D.I. 1396, the entry the district court cited, and approved by order at D.I. 1402. The September 10 order is a final order in that appeal.

The parties also litigated the contents of the appellate record. The debtors moved to strike items and issues designated for inclusion (D.I. 1261), and the bankruptcy court entered an order on that motion on November 25, 2025 (D.I. 1322).

Each appellant retains the ability to seek review in the Third Circuit under 28 U.S.C. § 158(d)(1). A notice of appeal from a district court order in this posture is due within thirty days under Federal Rule of Appellate Procedure 4(a)(1)(A). The plan went effective on December 12, 2025, so any further appeal would proceed against a consummated liquidating plan.

Every document cited in this report is available on the Nikola Corporation docket in Research Suite. The case record is at In re Nikola Corporation, No. 25-10258 (Bankr. D. Del.).

DISH DBS Corporation and DISH Wireless L.L.C. filed jointly administered Chapter 11 cases on June 30, 2026, in the Southern District of Texas, Houston Division, before Judge Christopher Lopez.Case No. 26-90627 The filing entities sit on either side of DISH Network's business: the DBS Debtors run the satellite television operation, and the DISH Wireless Debtors hold the spectrum and 5G network business built out through the Boost Mobile acquisition. At filing, the combined enterprise reported $8.4 billion in assets, $8.2 billion in annual revenue, and 10,400 employees. The cases were filed as a prepackaged Chapter 11, with a restructuring support agreement already in place, and DISH chose to file in Houston rather than in Colorado, where DISH DBS Corporation is incorporated and headquartered.

Although the case proceeds under a single caption, the DBS Debtors and the DISH Wireless Debtors are, in practice, two separate restructurings sharing a docket. DISH filed a joint prepackaged plan and disclosure statement on the petition date and amended it twice more before August, on July 22 and August 11, each round updating deal terms and eventually adding a separate FCC Trust structure and updated liquidation analyses for the two debtor groups.Dkt. 911, 912 The Restructuring Support Agreement sets an October 28, 2026 outside date for confirmation of the DBS Debtors' plan, a deadline that becomes central to the events of the last two weeks.

Everything described in the rest of this report happened inside a fourteen-day window, beginning with the plan bifurcation on August 27.

The bifurcation traces to an August 19 hearing. According to the Debtors' own account, the court proposed two possible tracks for resolving the case, and the Debtors confirmed they intended to elect the second of those tracks, which their filing refers to as the "merits track."Dkt. 1230 That choice carried a consequence: the Restructuring Support Agreement's October 28 outside date for confirming the DBS Debtors' plan meant the DBS side could not wait for the more contested DISH Wireless disputes to resolve. On August 21, the Debtors told the Ad Hoc Group of DBS Noteholders they intended to split the plans. They circulated a draft bifurcated plan on August 24 and received the Ad Hoc Group's comments on August 27, the same day they filed the statement memorializing the split with the court.

That same hearing also brought the case's other major players into the same room. Debtors' counsel met in person on August 19 with counsel to the Committee and with counsel to Crown Castle, American Tower, and SBA to discuss the disputes described in Sections VI and VII below, before the court issued its ruling on the scheduling tracks.

The same week produced a smaller but telling dispute. On August 18, the DISH Wireless Debtors filed an emergency motion asking the court to authorize a Battery Removal Program at what the motion calls Battery Sites, the former cell tower and network locations where DISH Wireless has rejected its leases. The relief requested was narrow: authority, but not a directive, to enter these abandoned sites and recover and recycle batteries left behind at no cost to the landlord, without triggering an administrative claim for rent or site access, and without any further obligation if a landlord declined to permit entry.Dkt. 1122 Before filing, the Debtors shared a draft with the Committee and with counsel to certain landlords, and briefed Crown Castle, American Tower, and SBA on its terms.

Judge Lopez held a hearing on the motion on August 28 and granted it from the bench. One landlord, Vollers Group, LLC, had filed a response reserving its rights three days earlier, and the order entered the same day as the hearing.Dkt. 1249 The same day, the Committee served its third round of Rule 2004 document requests on the Debtors, predating by a week and a half the filing of the trustee motion described in Section VIII.Dkt. 1253

Lease rejection activity continued at a steady pace over the same two weeks. Omnibus orders entered on August 24 and August 31 authorized rejection of leases identified in dozens of separate rejection notices, pushing the total past the fifty-ninth notice filed on August 28.Dkt. 1251 Twenty-one docket entries in this two-week window touch lease rejection, split between the debtors' own notices and certificates of no objection on one side and landlord objections on the other.

Public Storage joined other landlords' objections to the rejection notices on August 26.Dkt. 1209 Two more landlords, 3959 Foothill Blvd LLC and the pairing of 315 E58 BH LLC and Namdar 315 East 58 LLC, filed limited objections on August 28 and August 30, each reserving rights rather than opposing rejection outright.Dkt. 1250, 1269 The debtors have continued to file supplemental certificates of no objection every few days, each covering another set of leases.

Seven days after announcing the bifurcation, the DBS Debtors delivered on it. On September 4, they filed a modified plan and disclosure statement covering the DBS Debtors alone, along with a proposed order that would conditionally approve the adequacy of the disclosure statement, approve solicitation and voting procedures and the form of ballots, and conditionally waive the requirements that the U.S. Trustee convene a creditors' meeting and that the DBS Debtors file schedules of assets and liabilities, statements of financial affairs, and Rule 2015.3 reports.Dkt. 1345 A companion statement to the court laid out the resulting schedule.Dkt. 1346

The schedule leaves roughly four weeks of runway before the October 28 outside date, and nothing on it is final. The objection deadline has not passed, the plan supplement has not been filed, and confirmation depends on both.

The same September 4 statement describes a different posture for DISH Wireless. Citing the DISH Wireless Debtors' constrained liquidity, the debtors and the Special Committee of the Board of Managers of DISH Wireless L.L.C. decided to defer filing a further modified plan, disclosure statement, and solicitation procedures order, and to pause discovery and briefing on the Committee's standing motion and on Crown Castle's objection to the DWLLC intercompany loan claim.Dkt. 1346 The July monthly operating reports filed three days earlier put a number on that liquidity gap: DISH DBS Corporation disbursed just over $2.01 billion in July, while DISH Wireless disbursed $586,201.Dkt. 1280, 1281

Separately on September 4, three more tower-adjacent parties, TPG Peppertree, TowerCom, and Fengate, joined Crown Castle's motion to designate, recharacterize, disallow, and estimate the DWLLC intercompany loan claim for voting purposes.Dkt. 1335 The same claim is cited in the Committee's motion two days later.

On September 6, 2026, the Official Committee of Unsecured Creditors filed an emergency motion asking the court to appoint a Chapter 11 trustee for the DISH Wireless Debtors' estates under Bankruptcy Code section 1104(a), or, in the alternative, to terminate the DISH Wireless Debtors' exclusive periods under section 1121(d).Dkt. 1361 The motion runs 96 pages with exhibits and is directed solely at the six DISH Wireless Debtor entities; it does not seek relief against DISH DBS Corporation or any of the DBS Debtors.

The Committee argues cause exists under section 1104(a)(1) and, independently, that trustee appointment serves creditors' interests under section 1104(a)(2), pointing to the intercompany loan claim described in Section VII as evidence that the DISH Wireless plan process has been built on a foundation the Committee views as unconfirmable. As an alternative to trustee appointment, the motion asks the court to terminate exclusivity, arguing that the DISH Wireless Debtors have not made good faith progress negotiating with non-insider creditors and that the size and complexity of the case support relief under the multifactor test courts apply to section 1121(d) motions.

The Committee requested emergency consideration, with objections or responses due no later than 9:00 a.m. Central time on September 23, 2026, one day before the DBS Debtors' voting report and confirmation brief are due ahead of the September 29 combined hearing. The Committee's response to the Debtors' September 4 statement, filed the same day as the emergency motion, previews the same dispute over how the DISH Wireless plan timeline should proceed.Dkt. 1362

Of the case's 1,517 total docket entries, 204 were filed in the fourteen days between August 24 and September 6. Notices lead the count, driven heavily by the lease rejection process described in Section V, followed by certificates of service, orders, and claim transfers.

The next three weeks carry deadlines for both tracks of this case. The DBS Debtors are proceeding toward confirmation before their October 28 outside date. The DISH Wireless Debtors are awaiting a ruling on the Committee's trustee motion.

No hearing date has been set yet on the trustee motion itself.

Sleep Number Corporation and four affiliated debtors filed Chapter 11 petitions on June 12, 2026 in the United States Bankruptcy Court for the Southern District of New York, before Judge Kyu Young Paek.¹ The debtors sold substantially all of their operating assets to SNBR Inc., an affiliate of Sleep Country Canada, Inc., in a sale that closed July 31, 2026, leaving the estate without a standalone operating business.² Since then, the case has functioned as a liquidating estate winding down toward a plan.

Thirty-seven of the case's 685 docket entries to date, more than five percent, were filed between August 24 and September 5, 2026. The rest of this report covers that activity.

The single biggest development of the past two weeks came on September 4, 2026, when the debtors filed the Joint Chapter 11 Plan of Liquidation of Sleep Number Corporation and Its Debtor Affiliates, an 81-page plan,³ together with a 140-page disclosure statement² and a motion asking the court to approve the adequacy of that disclosure statement and the proposed solicitation and voting procedures.⁴ It is the first plan filed in the case. Wind-Down Debtors and a Plan Administrator take over the estate's remaining work under the plan, structured as five separate, non-consolidated plans of liquidation, one for each of the five debtors, filed together only for administrative convenience.

Only Classes 3 and 4 vote. Class 7, existing equity interests in the public parent, is cancelled, released, and extinguished as of the effective date, and holders receive no distribution.³ Class 4 general unsecured claims receive their pro rata share of the "GUC Trust Net Assets," which the plan does not, in the pages reviewed for this report, quantify with a stated recovery percentage. Class 3 prepetition loan claims are allowed in the aggregate amount of $477,500,000.00, less any amounts paid to holders "pursuant to the Paydown Order" before the effective date.³

One day after the plan landed, on September 5, 2026, the debtors filed a motion seeking authority to pay $153.5 million in cash to the prepetition lenders on account of amounts owed under the prepetition loan documents: $135 million immediately upon entry of the order, plus roughly $18.5 million more as certain processor reserve deposits are received.⁵ A declaration from Kent Percy supported the motion,⁶ filed alongside a separate motion to shorten notice so the request could be heard on an expedited basis.⁷

The debtors have proposed, and the court has not yet finally fixed, the following schedule for disclosure statement approval and plan confirmation.⁴

Every date on that list carries the plan's own caveat: the hearings may be adjourned or continued without further notice, and the plan may be modified before or during confirmation. None of it is guaranteed to hold.

The debtors filed two other motions on September 3, 2026, both set for hearing September 17, 2026, with responses due September 10, 2026. The first asks the court to approve omnibus claims objection and hearing procedures.⁸ The second asks the court to extend the deadline for the debtors to file notices of removal of civil actions.⁹

The sale order's designation rights process, under which the debtors continue to determine which leases and contracts to assume and assign to the buyer or reject, generated at least eight separate notices in this window: assumption-and-assignment notices for the fifth¹⁰ through eighth¹¹ designation rights periods, and rejection notices for the sixth¹² and seventh¹³ periods. Objection deadlines on these notices run from September 14 through October 11, 2026. A proof of claim was also filed by Mershops Market SQ Office LLC on September 2, 2026.¹⁴

The official committee of unsecured creditors' deadline to challenge the validity, priority, or extent of the prepetition lenders' liens, set under the final DIP financing order, was extended for a fourth time by stipulation filed August 28, 2026.¹⁵ No adversary proceeding challenging those liens has been filed in the case as of this report.

Responses to the omnibus claims procedures motion and the removal deadline extension are due September 10, ahead of the September 17 hearing on both. Designation rights objection deadlines for the notices filed in this window land September 14 through 18. Disclosure statement objections are due October 2, with the hearing to approve it set for October 15. Confirmation itself, on the debtors' proposed schedule, does not come until December 3.

1. Sleep Number Corporation, No. 26-11399 (S.D.N.Y.) – case record
2. Dkt. 617 – Disclosure Statement for the Joint Chapter 11 Plan of Liquidation, filed Sept. 4, 2026
3. Dkt. 616 – Joint Chapter 11 Plan of Liquidation, filed Sept. 4, 2026
4. Dkt. 618 – Motion to Approve Disclosure Statement Adequacy and Solicitation Procedures, filed Sept. 4, 2026
5. Dkt. 619 – Motion to Authorize Payment of Prepetition Loan Amounts, filed Sept. 5, 2026
6. Dkt. 620 – Declaration of Kent Percy, filed Sept. 5, 2026
7. Dkt. 621 – Motion to Shorten Time on Paydown Motion, filed Sept. 5, 2026
8. Dkt. 608 – Motion to Approve Omnibus Claims Objection Procedures, filed Sept. 3, 2026
9. Dkt. 609 – Motion to Extend Time to File Notices of Removal, filed Sept. 3, 2026
10. Dkt. 601 – Notice of Fifth Designation Rights Period Assumption and Assignment Notice, filed Sept. 1, 2026
11. Dkt. 614 – Notice of Eighth Designation Rights Period Assumption and Assignment Notice, filed Sept. 4, 2026
12. Dkt. 606 – Notice of Sixth Designation Rights Period Rejection Notice, filed Sept. 2, 2026
13. Dkt. 592 – Notice of Seventh Designation Rights Period Rejection Notice, filed Aug. 28, 2026
14. Proof of Claim filed by Mershops Market SQ Office LLC, Sept. 2, 2026
15. Dkt. 590 – Fourth Stipulation with Prepetition Loan Agent Extending Committee Challenge Deadline, filed Aug. 28, 2026

Republic National Distributing Company, LLC, at its height the nation's second-largest wine and spirits distributor with approximately $12 billion in annual revenue, filed voluntary Chapter 11 petitions on July 26, 2026 in the Bankruptcy Court for the Southern District of Texas, Houston Division. The cases are jointly administered under Case No. 26-90737 before Judge Christopher Lopez. A sustained decline in alcohol consumption after the pandemic, the loss of several key suppliers between late 2022 and 2025, and RNDC's withdrawal from the California market, announced in June 2025 and completed by September 2, 2025, left the Company unable to service the debt behind its multi-decade, acquisition-driven expansion. A prepetition sale of certain markets to Reyes-affiliated buyers, which the Debtors call the Reyes Sale Transactions, was required to close by May 31, 2026 under the terms of the Company's prepetition lenders, and the resulting proceeds paid down more than $1.1 billion of secured debt before the petition date. Kirkland & Ellis LLP and Porter Hedges LLP represent the Debtors, Lazard Frères & Co. LLC is investment banker, and AlixPartners LLP is financial advisor.

RNDC's Chapter 11 plan, filed eight days after the petition, and its disclosure statement, filed the following day, describe a wind-down rather than an operating reorganization. The Debtors intend to sell the remaining business in pieces and distribute proceeds to creditors through a litigation trust rather than emerge from the case as a going concern. The rest of this report covers docket activity from August 24 through September 7, 2026.

Source: Petition [Dkt. 1]; Disclosure Statement [Dkt. 118]; Sale Motion [Dkt. 338], at 3.

On August 28, the official committee of unsecured creditors filed a reservation of rights stating that, after three weeks of negotiation with the Debtors and the DIP lenders, it was close to a global resolution of its concerns with the DIP financing and with the confirmation timeline described in the Debtors' solicitation procedures motion, though it noted that a few open points and the documentation itself still required further work. The committee's filing also noted that the Debtors would not proceed with the solicitation procedures motion at the hearing then scheduled for August 31, and would instead adjourn it to a later date.

Consistent with that, the Debtors filed a notice on August 29 formally adjourning the hearing on the motion to conditionally approve the disclosure statement and approve solicitation procedures, which had been set for August 31, 2026, to a date to be determined. At the August 31 hearing itself, the Bankruptcy Court entered a final order granting the DIP motion in full, putting the $250 million facility on a final footing. Per the courtroom minutes, the same hearing set the disclosure statement hearing for September 10, 2026 at 9:00 a.m., and set October 22, 2026 at 1:00 p.m. for a combined confirmation hearing. A transcript and audio recording of the August 31 hearing are both on the docket.

Source: Committee Reservation of Rights [Dkt. 264]; Final DIP Order [Dkt. 275]; Courtroom Minutes [Dkt. 272]; Notice of Adjournment [Dkt. 267].

The Reyes relationship that funded RNDC's prepetition debt paydown closed out during this same window. The Bankruptcy Court had approved the Debtors' process for settling Reyes-related claims on an interim basis back on August 19. No party objected by the deadline, the Debtors filed a certificate of no objection on September 3, and the court entered a final order approving the settlement on September 4, roughly six weeks after the Debtors first proposed the process in a first-day motion.

Source: Reyes Settlement Motion [Dkt. 17]; Certificate of No Objection [Dkt. 296]; Final Order [Dkt. 298].

The official committee of unsecured creditors has been active on the docket throughout this period. It filed exhibit and witness lists ahead of the August 31 hearing, filed the August 28 reservation of rights described above, and on September 6 filed an application to employ McDermott Will & Schulte LLP as its counsel, supported by declarations from two committee professionals addressing the firm's disinterestedness. The application is subject to the standard 21-day objection period.

Source: Committee Reservation of Rights [Dkt. 264]; Application to Employ McDermott Will & Schulte LLP [Dkt. 340].

On September 4 and 5, the Debtors filed 18 schedules-of-assets-and-liabilities and statements-of-financial-affairs packages, the formal accounting required under section 521 of the Bankruptcy Code and previously subject to an extension granted on the first day of the case. The filings were made for RNDC and affiliated entities including RNDC Texas, RNDC Alaska, RNDC Arkansas, RNDC Indiana Holdings, RNDC Michigan, RNDC New Hampshire, RNDC Receivables, RNDC Shared Services, K&L Beverage Company, WSJV Holdings, 8201 Associates, and three separate Young's Market Company entities operating in Arizona, Oregon, and Washington.

Source: Docket Nos. 302-337, Case No. 26-90737.

On August 26, the Debtors filed an emergency motion asking the court to set September 28, 2026 at 4:00 p.m. Central time, 64 days after the petition date, as the general deadline for creditors to file proofs of claim, with a later January 22, 2027 deadline for governmental units. The Debtors filed a revised proposed order on September 1 along with a notice setting the motion for hearing, and it is going forward at the hearing on September 8. A handful of creditors, including the Internal Revenue Service, W.W. Grainger, ADP, and Remy Cointreau USA, have already filed proofs of claim on the docket even though no bar date has yet been entered.

Source: Bar Date Motion [Dkt. 250], at 2; Notice of Revised Proposed Order [Dkt. 284]; Notice of Hearing [Dkt. 285].

On September 4, the Debtors filed a motion to approve a Key Employee Incentive Plan for five senior executives the Debtors describe as essential to closing the remaining sales and winding down operations in an orderly way, noting that one similarly situated executive has already departed. The KEIP carries an anticipated maximum cost of approximately $2.3 million if the Debtors hit a stretch performance tier, and payouts are tied to the consummation of the Debtors' postpetition sale transactions, which the motion identifies as the Control States sale, an Alaska sale, a Kentucky sale, and a sale of Michigan franchise rights, alongside the wind-down of whatever remains.

Source: KEIP Motion [Dkt. 300], at 2.

The Control States sale referenced in the KEIP motion became concrete on September 5, when the Debtors filed an emergency motion to approve a private sale of the Control States business, spanning seventeen states, to Martignetti Companies Control State, LLC and two related Martignetti entities, under an Asset Purchase Agreement signed the same day. Lazard's marketing process for the Control States ran for months and contacted more than 50 potential buyers before Martignetti emerged as the only actionable bidder for the business as a single package.

Source: Sale Motion [Dkt. 338], at 2-4.

Three matters are scheduled over the next six weeks: the September 8 hearing on the bar date motion, the September 10 hearing on the disclosure statement and solicitation procedures, and the October 22 combined confirmation hearing. The objection deadline for the Martignetti sale motion, September 18, falls in between.

Source: Docket Nos. 250, 264, 267, 272, 275, 284, 285, 298, 300, 338, 340, Case No. 26-90737.

Braskem Idesa, S.A.P.I. and two affiliated debtors filed prepackaged chapter 11 petitions on August 17, 2026 in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. The plan, the disclosure statement and a first day declaration from a managing director of the debtors' proposed financial advisor were filed the following day. The restructuring support agreement was executed on the petition date.

The three debtors are Braskem Idesa, S.A.P.I., Braskem Idesa Servicios, S.A. de C.V. and Braskem Idesa Ethane LLC. Terminal Química Puerto México, S.A.P.I. de C.V., a 50/50 joint venture with Advario B.V. that holds the group's ethane import terminal, did not file.

In 2008, facing a deficit in the domestic ethylene production chain, the Mexican government and Pemex Transformación Industrial invited thirty-one Mexican and international petrochemical companies to bid for a long-term raw material contract paired with the construction of a petrochemical complex. A consortium of Braskem S.A. and Grupo Idesa, S.A. de C.V. won the bidding in 2009. The ethane supply agreement became effective in February 2010, and Braskem Idesa was incorporated in Mexico that April.

The complex sits on a site the declaration describes as approximately 200,000 acres at Nanchital de Lázaro Cárdenas del Río, Veracruz, in the Coatzacoalcos region. The declaration characterizes the project as the largest private industrial investment made in the Mexican petrochemical sector in over thirty years and the largest investment made in Mexico by a Brazilian company.

Excess power is sold to the grid. The declaration describes a railyard holding more than 400 hopper cars and thirty tank cars connecting to the major railroad concession in Mexico, twenty-one silos of 500 tons each, a 215,000 square foot warehouse, and a 300,000 square foot external yard capable of storing more than 36,000 tons of polyethylene. Product can be delivered anywhere in Mexico within an average of seventy-two hours.

The company produces approximately fifteen grades of polyethylene. Its customers are described as producers of third-generation petrochemicals manufacturing plastic films for food and industrial packaging, bottles, shopping bags, other consumer goods containers, and household appliances. Since completion, the declaration states, the complex has produced over 7.5 million tons of polyethylene and generated over $9 billion in revenue, and the company ranks among the lowest-cost polyethylene producers in the world.

Equity is held by Braskem Netherlands B.V. at 1,396,953 shares, Etileno XXI, S.A. de C.V. at 465,652 shares, and Braskem S.A. at a single share, out of 1,862,606 fully subscribed and paid shares. Total stockholders' equity as of December 31, 2025 was negative $414 million, consisting of $2 billion in total capital issued against negative $2.4 billion in retained earnings and other items.

The declaration identifies ethane as the largest cost line in the business and the input the complex cannot run without. Under the original supply agreement, Pemex was obligated to deliver 66,000 barrels per day, equivalent to 3,757 tons, for twenty years on a deliver-or-pay basis.

Deliveries fell short. The declaration attributes the shortfall to a combination of factors including a decline in Mexican natural gas production, and reports the delivery history below.

In 2021 the parties amended the agreement. The amendment reduced Pemex's supply obligations by more than 50%, released Pemex from liquidated damages for earlier shortfalls, and secured Pemex's support for construction of an ethane import terminal. Under the amended agreement Pemex supplies 30,000 barrels, or 1,708 tons, per day until that terminal is complete, after which it has no minimum delivery obligation, though the company retains a right of first refusal on available supplies Pemex does not use. Since the beginning of 2026, Pemex has provided approximately 14,000 barrels, or 794 tons, per day. The amended agreement is currently scheduled to expire in 2035, subject to additional extensions.

The company pursued three sources of replacement feedstock.

An overland import arrangement executed in September 2019 with a Mexico City port operator and a cryogenic gas transportation company brought ethane to docks in the port of Coatzacoalcos, into cryogenic tanks, onto trucks, and to the complex by road. Those operations have concluded now that the import terminal is running.

A supply relationship with Braskem Netherlands B.V. began with an open order quantity agreement in February 2020 and was superseded by a term agreement dated December 18, 2023, under which Braskem Netherlands or an affiliate supplies ethane through March 31, 2033. The ethane originates in the United States and is delivered at either the Morgan's Point facility at the Port of Houston or the Beaumont export facility in Texas, with title transferring before export. Outstanding invoices under that agreement stood at approximately $120 million as of the petition date, covering both ethane and supply vessels.

The ethane import terminal, approved in 2021, is held by Terminal Química Puerto México. It has storage capacity of approximately 54,000 tons and transport capability of approximately 80,000 barrels per day, equivalent to 4,554 tons, which the declaration states is more than sufficient for the complex's current total ethane needs. Under two services agreements dated October 31, 2023, each with an initial twenty-year term, the company pays the joint venture an average of approximately $7.4 million per month for storage and approximately $630,000 per month for transportation, both inclusive of applicable value-added taxes.

The declaration attributes the increase to imported ethane costing significantly more than domestic Pemex supply, with additional fixed costs from leasing vessels from related parties and variable per-ton costs subject to additional fees, premiums and customs costs.

On market conditions, the declaration states that since the second half of 2022 the debtors have operated against a sustained industry downturn, narrowed spreads and a constrained Mexican ethane supply. Polyethylene prices doubled in the first half of 2026 on geopolitical factors including conflict in the Middle East. Liquidity constraints held the complex to average utilization of less than 50% over that period, and prices have since fallen toward historically normalized levels.

All amounts are stated in United States dollars, with peso amounts converted at an approximate average of 17.47 Mexican pesos per dollar over the thirty-day period ending July 31, 2026.

The term loans and both note series rank pari passu in the prepetition shared collateral under a second amended and restated intercreditor agreement dated October 20, 2021. The term loan facility carried a maximum commitment of $180 million following an October 2025 amendment, against approximately $129 million drawn. The secured polyethylene facility consists of a $42 million advance payment made under an August 15, 2025 amendment, due December 31, 2027, and a $25 million advance payment made under a March 3, 2026 amendment, due December 31, 2028; the declaration states it may be satisfied by delivery of products or by repayment.

A receivables purchase facility permits the purchaser to buy up to $60 million of receivables, with no amount owing at the petition date. The debtors report a trade base of over 400 vendors with an average of 150 days past due, some unpaid for more than a year.

The non-debtor terminal joint venture is the borrower under an October 31, 2023 credit agreement providing a term loan facility of up to $408 million and a debt service reserve letter of credit facility of up to $32 million, with Crédit Agricole Corporate and Investment Bank as administrative agent and joint lead arranger and Citibank, N.A. as offshore collateral agent. The collateral is the terminal and the equity interests in the joint venture. Braskem Idesa is a sponsor under a related support and share retention agreement.

The terminal project missed certain milestones, causing a default under that credit agreement. The joint venture and its financing parties entered a forbearance agreement on December 30, 2025 that expired April 30, 2026, and a second on July 22, 2026 under which the financing parties agreed not to exercise remedies as to existing specified defaults or any default arising from the chapter 11 filing.

The declaration describes an emergency Inbursa term loan and, separately, emergency Braskem bridge facilities. Together they were meant to create room for an orderly balance sheet reorganization instead of a liquidation that would destroy value.

As of the petition date, the declaration states, holders of both note series and the term lenders had not called a default, accelerated or enforced remedies. Negotiations with Braskem, Inbursa and an ad hoc group of noteholders initially centered on a transaction in which those parties would have extended new money financing, taken a larger multi-tranche roll-up of prepetition debt, equitized a significant portion of remaining debt and held a majority of the reorganized equity. The parties moved off that structure before the filing.

Braskem Netherlands B.V. and Braskem America, or their affiliate designees, agreed to provide a superpriority, senior secured and priming delayed-draw term loan facility of approximately $409 million plus applicable fees and premiums. TMF Mexico Business Process, S. de R.L. de C.V. serves as collateral agent. The three debtors are the credit parties, and the motion states expressly that the non-debtor terminal joint venture is not a guarantor.

The roll-up converts emergency Braskem bridge facility obligations into term loans under the new facility, up to approximately $103.91 million at the interim order and up to approximately $25.98 million at the final order. The interim order provides that the exchange occurs on a cashless, dollar-for-dollar basis.

The commitment fee is 0.50% of $230,000,000 at the interim funding and 0.50% of $49,000,000 at the final disbursement, each paid in kind. The carve-out covers clerk and United States Trustee fees, up to $100,000.00 in chapter 7 trustee fees and allowed professional fees, with a post-trigger-notice cap of $8,000,000.00. A statutory committee, if appointed, receives $50,000 to investigate the prepetition liens. The challenge period runs to the earlier of plan confirmation, sixty calendar days after appointment of a committee as to that committee, and thirty calendar days after entry of the interim order as to all other parties in interest.

On use of proceeds, the motion identifies professional fees and restructuring charges, amounts owed to the lenders, working capital and general corporate purposes, and the costs of administering the cases. The declaration states the debtors expect to deploy the initial $230 million draw to increase production at the complex, nearly tripling utilization from recent lows, and puts the total incremental capital requirement at $350 million across the facility and the new money equity contribution. The facility was approved by unanimous shareholder resolution, including with support from Etileno XXI, before the cases commenced. The court entered an interim financing order on August 18, 2026.

The restructuring support agreement was executed August 17, 2026 among the debtors, Braskem, Inbursa and the ad hoc group of holders of senior secured notes. Those parties hold approximately 79% of the aggregate outstanding value of the debtors' prepetition secured debt obligations.

The plan allocates the reorganized equity in exact thirds, defining each of the Braskem funding, senior secured notes and existing shareholder equity allocations as one third on a fully diluted basis.

Braskem S.A. would receive its allocation in exchange for an aggregate of approximately $486 million, consisting of a roll-up of $131 million of prepetition support financing inclusive of accrued interest through the plan effective date, approximately $283 million in respect of the new money loans inclusive of accrued interest and the commitment fee, and a new money equity contribution of $71 million funded on the effective date. Holders of senior secured notes would receive their allocation through equitization of $825 million of senior secured notes claims. Existing holders would receive theirs pro rata to current holdings, in the form of reorganized Class B shares, as consideration for existing equity interests and post-reorganization support.

The remaining senior secured notes claims and the senior secured term loan claims would receive first lien exit notes issued on the effective date in an aggregate principal amount of approximately $1.6 billion, secured by priming liens on all assets of the borrower and guarantors, subject to exceptions in the exit notes documents. An equity special purpose vehicle would acquire the senior secured notes equity allocation for holders other than Inbursa and issue notes to those holders representing that equity in the form of reorganized Class A shares. Inbursa agreed under the restructuring support agreement to take a separately defined equitization instead.

The debtors describe the result as elimination of more than $920 million of debt from the balance sheet and preservation of approximately 800 direct jobs.

The plan establishes eleven classes. Six are entitled to vote.

Third-party general unsecured claims in Class 8 would be reinstated and paid in full in cash, or otherwise rendered unimpaired under section 1124, with no distribution on any claim already satisfied before the effective date pursuant to a final order.

Class 3 holders would receive a pro rata share of the senior secured notes exit notes allocation and of the equity special purpose vehicle notes. Class 4 holders would receive a pro rata share of the senior secured term loan exit notes allocation. Classes 5 and 7 would be satisfied in accordance with a Braskem commercial claims schedule, a plan supplement document due September 10, 2026. Each subordinated loan in Class 6 would be amended and restated so that its term extends beyond the term of the exit notes, it is subordinated to the exit notes, and all interest is payable in kind; the declaration states those loans already accrued at 7% payable on the same date as principal.

Class 9 and Class 10 would be cancelled or reinstated at the reorganized debtors' discretion. Class 11 interests would be cancelled, with each holder receiving a pro rata share of the existing shareholder equity allocation in reorganized Class B shares. The disclosure statement lists no projected percentage recovery for Class 11 and states in a footnote that holders will receive approximately $486 million in reorganized equity at the stipulated plan equity value.

The disclosure statement states that projected recoveries assume, solely for illustrative purposes, an implied plan equity value of approximately $1.46 billion derived from the $486 million contributed in exchange for one third of the reorganized equity on a fully diluted basis. It states that value is solely a product of the plan's negotiated terms, is not based on a valuation analysis, is not an estimate of trading value, and that no valuation analysis has been prepared in connection with the plan or disclosure statement.

The court entered a scheduling order on August 18, 2026.

Under the restructuring support agreement milestones, a final financing order, approval of the disclosure statement and entry of a confirmation order are required no later than forty calendar days after the petition date. The plan effective date is required no later than fifty-five calendar days after the petition date, subject to automatic extension to an outside date if all conditions other than required regulatory approvals are met and the company and the consenting shareholders are working in good faith to obtain them.

Kroll Restructuring Administration LLC is claims, noticing and solicitation agent. No creditors' committee had been appointed as of the docket reviewed for this report.

The cases are pending as Case No. 26-90762 (CML), jointly administered, before Judge Christopher M. Lopez. Hunton Andrews Kurth LLP and Cleary Gottlieb Steen & Hamilton LLP are proposed co-counsel to the debtors, with Sainz Abogados, S.C. as Mexican counsel. Alvarez and Marsal North America, LLC is proposed financial advisor, Lazard Frères & Co. LLC and Lazard Assessoria Financeira Ltda. are proposed investment bankers, and Hilco Global Mexico is proposed appraisal and valuation services provider. Haynes and Boone, LLP and Davis Polk & Wardwell LLP represent the ad hoc group of secured noteholders. Porter Hedges LLP and Herbert Smith Freehills Kramer (US) LLP represent Inbursa and related parties. Jones Day represents Braskem S.A.

The plan has not been confirmed and the objection deadline has not passed. The following items remained open as of the docket reviewed for this report.

Regulatory approvals

The plan's conditions precedent include obtaining all authorizations, consents, regulatory approvals, rulings and documents necessary to implement the plan and the restructuring transactions. The fifty-five day effective date milestone carries an automatic extension triggered by an outstanding regulatory approval. The documents reviewed for this report do not state when the outside date that extension runs to falls.

The ethane import terminal

The joint venture that owns the terminal is not a debtor. Its financing parties have forborne rather than waived, and the collateral includes the equity interests Braskem Idesa holds in the joint venture. The second forbearance agreement covers defaults arising from the chapter 11 filing.

Plan supplement and unquantified terms

The Braskem commercial claims schedule governing the amounts for Classes 5 and 7 is due September 10, 2026 and was not on file. The Inbursa equitization is defined by reference to the restructuring support agreement and is not quantified in the plan or disclosure statement. The exit notes are stated at approximately $1.6 billion in the declaration and the disclosure statement, and the plan states no amount.

Voting

Classes 3 through 7 and Class 11 are entitled to vote. The 79% support figure in the restructuring support agreement is stated in the aggregate across the prepetition secured debt, and the filings reviewed for this report do not break it out by class or by facility. The voting report is due three days before the combined hearing.

U.S. TelePacific Corp. and eleven affiliated debtors filed an amended disclosure statement and an amended joint chapter 11 plan on August 18, 2026 in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. The amendment follows a notice filed eight days earlier stating that no qualified bid arrived by the bid deadline, that the auction scheduled for August 12 was cancelled, that the debtors will not proceed with a sale transaction, and that they are instead proceeding with a reorganization transaction under the plan.

The disclosure statement characterizes the debtors' challenges as not a consequence of operational deficiencies but rather an imbalance in the capital structure given operating revenue.

The disclosure statement describes a national provider of managed connectivity and networking, unified communications, cybersecurity and information technology services to business customers across the United States. The company was founded in 1998 in California as TelePacific Communications, operating primarily as a competitive local exchange carrier serving small and mid-sized business customers in that state.

Three acquisitions built the current footprint. NextWeb in 2010 added broadband and enterprise connectivity in Nevada as well as California. Tel West Communications in 2011 established a Texas presence and added thousands of small and mid-sized business customers. DSCI in 2016, a managed services provider headquartered in Massachusetts, expanded the customer base into the northeastern United States and added unified communications and managed information technology capabilities. Historical concentrations remain in California, Texas and the Northeast.

The company serves approximately 11,000 customers primarily operating across the fifty states, in healthcare, financial services, legal, retail, manufacturing, education, government and non-profit organizations. It is headquartered in Austin, Texas, supported by approximately 575 employees working on premises or remotely, hundreds of independent contractors, and approximately fifty employees of a non-debtor affiliate in Ireland providing back-office customer and information technology support.

The four service lines are managed connectivity and networking, which the disclosure statement describes as the largest and most business-critical portfolio and which includes software-defined wide area networking, dedicated internet access, Ethernet transport and private networking; cybersecurity solutions including secure access service edge, managed firewall and network security, endpoint protection and incident detection and response; unified communications including hosted voice over internet protocol telephony, video conferencing, team collaboration and cloud-based contact center services; and managed infrastructure and information technology services including server and endpoint management, cloud migration, backup and disaster recovery and remote help desk. The disclosure statement states the company functions as an outsourced information technology department for many small and mid-sized enterprises, on a subscription model generating recurring revenue across multiple service lines.

The debtors operate as regulated carriers holding numerous federal and state telecommunications licenses and authorizations. Federal Communications Commission approval is required for any transaction resulting in a direct or indirect transfer of control of regulated entities. The disclosure statement states the restructuring transactions cannot be consummated until, among other things, all required Commission approvals have been obtained, and that as a practical matter the Commission is not expected to grant applications until all time periods required by its rules have passed. State public utility commission applications will be filed where transfer-of-control approval is required, with the level of review and timing varying by state, and the debtors and their advisors are continuing to assess whether further clearances beyond the Commission and the state commissions apply.

In February 2022 the company announced a $70 million growth equity investment led by Siris Capital Group, LLC, and refinanced its senior debt obligations on terms the disclosure statement describes as more favorable, including a multi-year extension of maturities. The disclosure statement states that although the transaction provided incremental capital and extended runway, the business remained subject to significant funded debt obligations.

The 2023 transaction produced the current structure. Before it, funded debt consisted primarily of a first lien credit agreement providing a term loan facility with an initial aggregate principal amount of approximately $580 million and a revolving credit facility with an initial aggregate principal amount of approximately $25 million.

That facility was refinanced through an offering to participating lenders to up-tier 50% of their current first lien holdings into a new super-senior first lien facility. The remaining 50% of existing first lien holdings were purchased by the consenting investor at a discount and subordinated to the participating lenders, which produced the second lien term loan facility. The second lien facility also carried an approximately $65 million new capital infusion from the consenting investor. Participating lenders received additional consideration through a third lien term loan facility in amounts equal to approximately 5.0% of their holdings under the prior facility. One lender did not participate, and its holdings remain outstanding as a stub position under the revolving credit facility.

The consenting investor is defined in the disclosure statement as Tango Private Investments, LLC, Tango Private Holdings I, LLC and Tango Private Holdings II, LLC, the company's sole direct equity holders. A footnote states the consenting investor or an affiliate also holds a minority position in the first lien and third lien facilities and holds 100% of the obligations outstanding under the second lien facility.

Wilmington Savings Fund Society, FSB serves as administrative agent and collateral agent under all five funded debt facilities, with U.S. TelePacific Corp. as borrower and U.S. TelePacific Holdings Corp. as parent guarantor. Amounts outstanding include principal plus accrued payment-in-kind and unpaid cash interest.

Two of those maturity dates had passed when the company filed. The revolver matured in November 2025 and remains outstanding, and the first lien matured in May 2026 and is subject to forbearance agreements. A third, the superpriority facility, matured in July 2026. A footnote states the superpriority facility carries a 1.75 times multiple on invested capital that is not included in the $22 million balance shown.

All five facilities are secured by liens on substantially all assets. The first lien and revolving facilities are subject to a pari passu intercreditor agreement dated June 1, 2023, under which distributions to Class 3 are to be made. The disclosure statement states that the revolving lenders, though not party to the initial forbearance agreements, are prohibited under that agreement from exercising remedies absent consent of the required lenders.

The company has also funded ordinary course operations through the sale of accounts receivable under agreements dated February 11, 2020 with Tango Stockholder Holdings, LLC and June 1, 2023 with Tango Private Investments, LLC, the latter being one of the three entities that make up the defined consenting investor.

The disclosure statement states the company has continued to operate as a going concern and generated positive adjusted earnings before interest, taxes, depreciation and amortization, but that revenue growth and overall scale have not increased to a level sufficient to service the funded debt while maintaining minimum liquidity for working capital, capital expenditures, lease obligations and other ordinary-course expenses.

Entering 2025, the company reviewed projected cash flows against debt service requirements and minimum liquidity covenants and recognized approximately $300 million of funded debt maturities coming due in 2026. Three obligations are identified as the near-term pressure points: the November 2025 maturity of the revolving credit facility, a material fourth-quarter payment obligation on certain fiber leases no longer used by the company, and a substantial December 2025 cash interest payment under the first lien term loan facility.

The special committee was established in October 2025 and the independent investigation it directs has been ongoing since February 2026. It remained ongoing at the petition date, and the committee anticipates concluding it during the chapter 11 cases.

The process ran in two phases. Prepetition, beginning December 4, 2025, PJT Partners LP contacted 65 potential buyers comprising strategic partners and financial sponsors. Thirty-three signed non-disclosure agreements and received access to a virtual data room. Management and PJT held 26 diligence sessions and other transaction-related conversations, including 9 management presentations. The company received 9 bids, none of which reflected sufficiently developed terms to proceed on an actionable basis at that time.

The company determined that continuing in a court-supervised environment would maximize value and provide additional time and flexibility to solicit higher or otherwise better bids. The disclosure statement sets out the alternative outcome, stating the postpetition process would either consummate a value-maximizing sale transaction or, if no actionable bids were received, serve as a robust market test to inform the terms of any potential pivot to a reorganization transaction.

The court entered the bid procedures order on June 29, 2026. The order established the framework, requirements and deadlines governing the postpetition process, including minimum bid requirements that any actionable bid had to meet or exceed. No stalking horse bidder was designated.

Twenty-seven parties are reported as declining to participate further. The bid deadline was August 7, 2026 at 4:00 p.m. prevailing Central Time. The disclosure statement states that the debtors did not receive any qualified bid or other actionable bid satisfying the minimum bid requirements, and accordingly no auction would be held.

Neither the disclosure statement nor the cancellation notice states the threshold value of the minimum bid requirements, and no bid amounts, valuations or bidder identities are disclosed in the pages reviewed for this report.

The notice of cancellation was filed on August 10, 2026. It recites the bid procedures history and the conditional approval of the original disclosure statement on July 7, 2026. It states the debtors did not receive any qualified bids by the bid deadline. It states that consistent with Article XI of the bid procedures, the debtors, in consultation with the consultation parties, cancelled the auction previously scheduled for August 12, 2026 and will not be proceeding with the sale transaction. And it states the debtors are proceeding with the reorganization transaction under the plan, with the combined hearing to be held September 2, 2026 at 11:00 a.m. prevailing Central Time and objections due on or before August 26, 2026.

The amended plan and disclosure statement followed eight days later. The disclosure statement states the debtors made the determination to pursue the reorganization transaction with the consent of the ad hoc group, characterizes it as the best available value-maximizing transaction providing a clear and executable path to deleveraging while preserving going-concern value and minimizing interruption to ongoing business activities, and states the marketing and sale process served as a robust market check.

The plan filed on the petition date contemplated both outcomes, the bid procedures set out the fork, and the original disclosure statement was conditionally approved on July 7 covering both paths. This report did not review the July 6 versions of the plan and disclosure statement and does not state what else changed between them and the August 18 amendments.

The debtor-in-possession facility comprises $20 million of new money and a $53.5 million roll-up facility. The roll-up is composed of $34.7 million of loans payable under the superpriority term loan facility after accounting for the 1.75 times multiple on invested capital, $13.8 million of unpaid cash interest under the first lien facility, and $5 million of loans outstanding under the first lien facility.

Each piece then converts. New money facility obligations convert dollar-for-dollar into the first lien exit facility. Rolled bridge facility obligations either convert dollar-for-dollar into the exit facility, if the holders fund their pro rata portion of the new money facility, or are paid in full in cash from the proceeds of the preferred equity new money commitments. The rolled payment-in-kind bridge converts either into the exit facility or into Tranche A preferred equity interests. The pari rolled debt converts into the exit facility.

Remaining first lien term loan and revolving credit facility obligations either convert into equity of the reorganized company, subject to dilution, or receive a pro rata cash payment from the preferred equity proceeds. Second lien obligations convert into warrants. The third lien receives nothing.

The preferred equity new money commitments come from certain consenting stakeholders. Tranche A comprises a $51.6 million new money commitment, a $3.7 million commitment fee and $9.3 million of obligations from the rolled payment-in-kind bridge. Tranche B is a contribution by the receivables purchasers of $9.8 million of receivables obligations back to the company.

Class 3 holders would receive a pro rata share of the reorganization consideration, with an option to elect a cash-out in lieu, and all distributions made in accordance with the pari passu intercreditor agreement. The disclosure statement explains the 2-7% range as illustrative, with the low end representing the recovery under the intercreditor agreement and the high end the recovery for holders electing to cash out, and states the range reflects a recovery on secured claims and no recovery on any deficiency claims. The cash-out amount was filed on August 17 as an exhibit to the plan supplement, which sets it at a 7.5% recovery on principal, calculated against an aggregate first lien term loan claims principal amount of $394,026,303 before giving effect to any roll-up, and illustrates it at $15.8684 per cashed-out interest assuming one million common equity interests are issued to funding consenting lenders.

Class 6 holders would receive a pro rata share of the total general unsecured claim consideration. That consideration consists of fixed consideration of $1.0 million in cash, a savings consideration equal, to the extent positive, to the amount budgeted for professional and advisor fees less amounts actually paid and estimated to accrue through the effective date, and a first day consideration equal to $15.5 million less the aggregate amount of first day payments as of the effective date and not less than zero. The whole is subject to an aggregate cap of $3.0 million and a proportionate reduction if allowed Class 6 claims total less than $27.8 million. The disclosure statement notes the $27.8 million estimate is preliminary and subject to material change.

Under a settlement among the official committee of unsecured creditors, the debtors and the ad hoc group memorialized in a term sheet filed July 31, 2026, the pari funded debt, second lien and third lien deficiency claims are waived as of the effective date and receive no distribution, the aggregate amount payable on account of allowed professional fee claims of the committee's professionals is capped at $1.95 million, the committee's investigation budget is increased to $75,000, the carve-out for the committee's professionals is increased to $150,000, and the final financing order includes agreed soft marshaling language. In exchange the committee agreed to support the restructuring, including by forgoing challenges, not seeking standing to pursue them, recommending that general unsecured creditors vote to accept the plan, and not objecting to relief substantially consistent with the term sheet.

The plan contains a debtor release and a third-party release. Both are carved back for obligations arising after the effective date under the definitive documents, causes of action on the schedule of retained causes of action, and claims arising from acts determined by a court to have resulted from fraud. The third-party release carries a fourth carve-back the debtor release does not: any indemnification obligation of the company to the consenting investor, Tango Stockholder Holdings, LLC and their related parties in connection with unpaid receivables purchase obligations or the debtors' governance documents. With respect to claims against the debtors, the third-party release applies only to acts occurring from the petition date through the effective date.

Releasing parties include holders who vote to accept, are deemed to accept, vote to reject, are deemed to reject, or whose vote is solicited but who do not vote, in each case where the holder does not affirmatively opt out. Holders of general unsecured claims are releasing parties only to the extent they receive or retain a distribution. An entity is not a releasing party if it opts out or timely objects to the third-party release through a formal objection filed on the docket that is not resolved before confirmation. Exculpation runs only to acts from the petition date through the effective date and excludes acts determined in a final order to have constituted fraud.

The plan has not been confirmed, the objection deadline has not passed, and both objections remain unresolved. The following items were open as of the docket reviewed for this report.

Regulatory approvals

The plan sets twelve conditions precedent to the effective date. One is obtaining all authorizations, consents, regulatory approvals, rulings and documents necessary to implement the plan and the restructuring transactions. Conditions may be waived by the debtors only with the prior written consent of the required consenting ad hoc group lenders and the required funding consenting lenders.

The independent investigation

The special committee's investigation into claims against related parties remains ongoing and is expected to conclude during these cases. The plan's releases run to released parties subject to the fraud carve-out and the schedule of retained causes of action.

Voting

Classes 3 through 6 are entitled to vote. The support percentages in the restructuring support agreement are stated by lender group rather than by class. The voting report is due August 31, 2026.

Professionals

Sidley Austin LLP is counsel to the debtors. Katten Muchin Rosenman LLP was retained by order entered August 5, 2026 as counsel to debtor U.S. TelePacific Corp. at the sole direction of the special committee; the disclosure statement describes the engagement as having been made by U.S. TelePacific Holdings Corp. Triple P TRS, LLC provides a chief restructuring officer and additional personnel, with Triple P TAS, LLC providing transaction advisory services, and PJT Partners LP is investment banker.

BFG Supply Co., LLC and sixteen affiliated debtors filed chapter 11 petitions on August 18, 2026 in the United States Bankruptcy Court for the District of Delaware. The financing motion was filed the next day. At a first day hearing on August 20 the court entered interim orders on the financing, the sale of inventory and the usual operating relief, together with final orders directing joint administration, appointing a claims agent and authorizing a foreign representative.

The customer programs motion describes the debtors as a leading national and Canadian wholesale distributor of professional horticulture, lawn and garden, hydroponic, and controlled environment agriculture products, selling primarily to commercial growers, nurseries and independent garden centers and fulfilling orders through their distribution facilities.

The critical vendor motion supplies the history. It states the debtors operate one of North America's leading value-added wholesale distribution platforms serving the professional green industry, and that over more than five decades the business evolved from a regional horticultural supplier into a diversified distributor of lawn and garden products, greenhouse supplies, nursery products, controlled-environment agriculture products, greenhouse structures and related horticultural equipment. It attributes the current footprint to organic growth and strategic acquisitions, describing a platform that connects a fragmented supplier base with thousands of commercial customers across the United States and Canada.

Several of the seventeen debtor entities are manufacturers and contractors rather than distributors. De Cloet Greenhouse Mfg. Ltd. manufactures greenhouse structures and related components. Green-Tek, LLC manufactures greenhouse coverings and related products. International Greenhouse Contractors, LLC and its subsidiaries provide greenhouse construction and horticultural services.

The customer relationships run through a rebate program, a return and shortage policy, a defective allowance policy, customer deposits and a co-op advertising program, all of which the debtors sought authority to continue. The workforce is approximately 461 full-time employees, defined as those working at least thirty hours per week, thirty-one of them employed by De Cloet Greenhouse Mfg. Ltd., an Ontario corporation, together with approximately seven independent contractors. The cash management system ran through sixteen bank accounts at the petition date, with the primary accounts held in the name of BFG Supply Co., LLC. The debtors' service address is in Grand Rapids, Michigan.

The financing motion sets out the working capital cycle. The prepetition asset-based facility is the debtors' principal source of seasonal working capital financing. The debtors must build inventory well in advance of the spring selling season. Revolver borrowings historically increased during inventory accumulation and declined as seasonal receivables were collected.

The assets the consultant is selling reflect that cycle: on-hand and in-transit inventory, machinery, equipment and fixtures at the distribution facilities, and accounts receivable. Under the intercreditor agreement described in Section V, the inventory and receivables are the asset-based lender's first-lien collateral, and the machinery, equipment and fixtures are the term loan agent's.

In November 2025, in what the financing motion describes as a response to the debtors' developing liquidity challenges, the parties amended both prepetition facilities. The amendments added borrowing capacity through a new term loan with a principal amount of $45 million and a delayed draw term loan facility with commitments of $15 million. They extended the maturities of the existing instruments. And they exchanged the existing term loans on a cashless basis into two new classes, Term Loans A in an aggregate principal amount of $32,500,000 and Term Loans B in an aggregate principal amount of $178,449,679.50, with $8,199,679.50 of accrued but unpaid interest paid in kind by being added to principal immediately prior to the exchange.

The amendments also modified interest payment mechanics so that interest on the term loan facility is paid in kind unless the debtors affirmatively elect cash interest. The motion describes that as relief that reduced near-term cash interest obligations. In the same passage it states that the mechanic added a 3.00% per annum payment-in-kind premium to the applicable rate, further increasing the rate at which the outstanding principal balance grows.

Both facilities date to November 5, 2021, with Bamboo Purchaser, Inc. as borrower and BFG Purchaser Parent, Inc. as holdings. Both are secured by substantially all assets. An intercreditor agreement of the same date, amended in January 2024 and again in November 2025, allocates the collateral. The motion states the asset-based priority collateral consists primarily of accounts receivable, inventory, cash, deposit accounts and related general intangibles, with a second lien on everything else, and that the term loan priority collateral consists of all other common collateral, including real estate, equipment, equity interests and intellectual property. Both descriptions are illustrative rather than exhaustive on the face of the motion.

The asset-based facility contains cash dominion provisions that become operative if unrestricted cash falls below specified thresholds. The motion states the prepetition term loan secured parties are deemed under the intercreditor agreement to have consented to the debtor-in-possession facility, subject to conditions the motion states are satisfied.

On July 28, 2026, three weeks before the petition date, BFG Supply Co., LLC executed a consulting agreement with SB360 Capital Partners, LLC and Tiger Capital Group, LLC, acting jointly as consultant. The motion states the debtors retained them after receiving and evaluating proposals from two other asset advisory firms. Sale services commenced on or about August 3, 2026.

The agreement covers on-hand and in-transit inventory at the listed warehouses and distribution centers, machinery, equipment and fixtures at those facilities, and the collection or sale of accounts receivable. Sales are free and clear of liens, claims, encumbrances and interests, with encumbrances attaching to net proceeds according to the priorities in the financing order and any orders entered in the Canadian proceeding.

Net of those amounts, proceeds are remitted to the debtor-in-possession agent and the applicable prepetition agent for application to the financing obligations and the prepetition secured obligations under the financing order and its lien priority annex. The interim order entered August 20, 2026 authorizes the debtors to assume the consulting agreement, approves the sales free and clear, ratifies the actions taken before entry of the order, and authorizes payment of the consultant's fees, expense reimbursements and indemnification without any application by the consultant or further order of the court.

The facility is a superpriority senior secured asset-based revolving credit facility in an aggregate principal amount of up to $55 million, with ACF FinCo I LP as administrative and collateral agent. The lenders are the lenders party to the prepetition asset-based credit agreement, participating pro rata according to their share of the existing revolving commitments at the petition date. Bamboo Purchaser, Inc. borrows and every other debtor guarantees. The facility is subject to availability under a borrowing base.

On entry of the interim order, commitments become available through what the motion calls a creeping roll-up. All cash, collections and proceeds of the collateral other than term loan priority collateral are applied on a dollar-for-dollar basis to reduce the prepetition revolving loans, and paying them down gives rise to a corresponding amount of availability under the new facility. Banking services obligations and secured hedging obligations are deemed obligations under the new facility at the same time. On entry of a final order, any remaining prepetition revolving loans of the participating lenders are refinanced into the facility on a cashless basis, together with cash payment of accrued interest, fees and other amounts owing to them.

The entered interim order authorizes the debtors, prior to entry of a final order, to request extensions of credit up to an aggregate principal amount of $22 million outstanding at any one time.

The motion states the debtors' investment banker solicited interest from no fewer than fourteen third-party institutions that routinely provide this kind of financing, asking whether any would extend credit on an unsecured, junior priority or priming basis, and that none was willing to do so. It states the prepetition asset-based secured parties would not consent to the use of their cash collateral, and the lenders would not extend credit, without the creeping roll-up at the interim order and the full roll-up at the final order. It characterizes the rolled-up obligations as consideration for the lenders' agreement to fund rather than as adequate protection on account of the prepetition obligations.

One condition precedent to the initial borrowing is receipt of a fully executed specified sales agreement. The milestone schedule requires an interim order assuming that agreement by August 20 and a final order by September 17. The only assumption order entered on August 20 is the one approving the consulting agreement.

The two prepetition lender groups receive different protection.

The asset-based secured parties receive replacement liens on all collateral, section 507(b) superpriority claims, monthly cash payment of interest on their prepetition obligations at the default rate specified in the prepetition credit agreement, and payment of the agent's reasonable and documented fees, costs, expenses and charges. Current cash interest at a default rate is the only form of adequate protection here that converts to cash during the case.

The term loan secured parties receive replacement liens and section 507(b) claims on the same terms, and payment of their agent's fees and expenses solely from and to the extent of funds in a term loan reserve until the financing obligations and the prepetition asset-based obligations are paid in full. After that, without limitation. Their lien position depends on the collateral: on the inventory, receivables and cash, they sit behind the revolver and the superpriority facility, and on the machinery, equipment and fixtures, the lien priority annex places the prepetition term loan liens and obligations ahead of the financing liens and superpriority claim.

Before a trigger notice, the carve-out covers unpaid professional fees incurred in accordance with the approved budget. After one, it drops to $250,000 for the debtors' professionals and $50,000 for a committee's, plus statutory fees under 28 U.S.C. section 1930(a) and up to $50,000 in chapter 7 trustee fees. The debtors must fund the outstanding carve-out into a professional fee escrow account within three business days of the notice, first from cash on hand and then from facility proceeds. The initial approved budget attached to the interim order projects professional fees of $698,000, $658,000, $656,000 and $606,000 in the four weeks ending August 21, August 28, September 4 and September 11.

The $50,000 investigation budget is available only to a statutory committee if one is appointed. No creditors' committee had been appointed as of the filings reviewed for this report. Other parties in interest retain a challenge right that expires seventy-five calendar days after entry of the interim order, on November 3, 2026.

The financing motion describes three concurrent and complementary value-maximizing workstreams: a court-supervised going-concern marketing and sale process, an orderly monetization of inventory, receivables and other assets, and a real estate disposition program.

Every milestone requires terms, conditions and documentation in form and substance acceptable to the agent in all respects. The agent may extend any of them by up to ten days in its sole and absolute discretion, or longer with required lender consent. Failure to comply with a milestone is an event of default.

The bidding procedures motion seeks authority to designate a stalking horse bidder and to provide bid protections. No stalking horse had been designated when the case was filed. The bid deadline, auction date and sale hearing date are set in that motion, which was not available in the Research Suite index for this case.

The cases are jointly administered under Case No. 26-11284, with member cases numbered 26-11283 through 26-11299. Judge Craig T. Goldblatt was assigned on August 19, 2026.

The court authorized De Cloet Greenhouse Mfg. Ltd. on August 20, 2026 to act as foreign representative and to commence a recognition proceeding before the Ontario Superior Court of Justice, Commercial List, under Part IV of the Companies' Creditors Arrangement Act. The filings reviewed for this report do not confirm that the proceeding had been commenced. The debtors anticipate seeking recognition of De Cloet's chapter 11 case rather than all seventeen.

The employee wages motion estimates prepetition employee obligations of $1,064,951.62 for the interim period and $1,937,715.74 for the final period, and states that $844,274.51 of accrued paid time off within the final figure is not a current cash obligation. Canadian dollar amounts were converted at 1.3872 Canadian dollars to one United States dollar. The critical vendor motion estimates approximately $2 million in claims due or coming due within the first twenty-one days.

No financial advisory firm or chief restructuring officer is named in any filing reviewed for this report. The filings refer to the debtors' advisors and to company advisors as a defined term whose engagement letters are a condition precedent to the initial borrowing, without identifying the firms.

The financing order and the sale order are interim, objection deadlines have not passed, and no bidding procedures have been approved. The following items remained open as of the filings reviewed for this report.

The going-concern sale

No stalking horse bidder has been designated. The bidding procedures hearing is set for September 16, 2026, the milestone for an order approving those procedures falls on September 17, and consummation is required by October 22. The inventory and receivables liquidation continues under an interim order in the meantime.

Final orders

The final financing hearing and the omnibus final hearing on the first day motions are both set for September 16, 2026, with objections due September 9. The milestone for entry of the final financing order falls on September 22. The full roll-up of remaining prepetition revolving loans takes effect at the final order.

Challenge rights

The challenge deadline is November 3, 2026. No creditors' committee has been appointed, and the $50,000 investigation budget is available only to a committee if one is appointed.

On August 10, 2026, Senior United States District Judge Jane J. Boyle dismissed as moot an appeal from the final debtor-in-possession financing order entered in the Genesis Healthcare chapter 11 cases. The dismissal rests on 11 U.S.C. section 364(e), the statutory mootness provision protecting good-faith postpetition lenders. The opinion issued in Almeda v. Genesis Healthcare, Inc., Civil Action No. 3:25-CV-2563-B, in the Northern District of Texas, Dallas Division, with a final judgment to follow.

The holding itself is a dismissal, which is the least interesting thing about it. What makes the opinion worth reading is the route. Judge Boyle confronted an open question in the Fifth Circuit about how far section 364(e) reaches, surveyed a genuine circuit split, predicted which side the Fifth Circuit would take, and then applied a limiting principle that keeps the rule from swallowing everything a party might attach to a financing order.

Genesis Healthcare, Inc. operates healthcare facilities across the country. Genesis and several affiliates filed chapter 11 petitions in July 2025 in the Northern District of Texas, before Judge Stacey Jernigan. Research Suite case data reflects approximately $4.06 billion in assets at filing, roughly $3.3 billion in annual revenues, and about 27,000 employees, with McDermott Will & Emery as debtors' counsel and Proskauer Rose as committee counsel.

To fund operations during the case, the debtors sought approval of postpetition financing. The bankruptcy court entered the Final DIP Order on August 28, 2025, authorizing borrowing of up to $30 million from various lenders in exchange for security interests and liens. The bankruptcy court found that the debtors needed the funding to avoid serious and irreparable harm, that more favorable terms were unavailable, and that the terms had been negotiated in good faith and at arm's length. The order granted the DIP secured parties the full protection of section 364(e) in the event the order was reversed or modified on appeal.

The appellants are a group of sixty tort claimants holding personal injury or wrongful death claims against Genesis and its affiliates. Welltower OP LLC, one of the lenders, intervened as an appellee. Under Federal Rule of Bankruptcy Procedure 8019(b)(3), the court determined that oral argument was unnecessary and decided the appeal on the briefs and the record.

The appellants did not attack the loan. They did not contest the validity of the credit extended, the priority of the liens, or the amount borrowed. Their challenge was confined to a single feature of the Final DIP Order: the releases of claims held by Genesis against its prepetition lenders who also agreed to lend postpetition.

Their objection had two parts. The released claims possibly include claims the appellants themselves could have brought outside bankruptcy. And the definition of released parties is drawn too broadly, sweeping in insiders of Genesis.

In their reply brief the appellants made the narrowing explicit, stating that they were not asking the court to invalidate any terms of the Final DIP Order pertaining to the validity of the credit or debt incurred or to any priority or lien granted under section 364, and that they had filed the appeal to invalidate the releases. The opinion quotes that passage and treats it as dispelling any doubt about the basis of the challenge.

Section 364 permits a debtor in possession, with court permission, to obtain new credit during the case. Subsection (e) then provides that reversal or modification on appeal of an authorization to obtain credit or incur debt, or of a grant of a priority or a lien, does not affect the validity of any debt so incurred or any priority or lien so granted to an entity that extended credit in good faith, whether or not that entity knew of the pendency of the appeal, unless the authorization and the incurring of the debt or the granting of the priority or lien were stayed pending appeal.

The purpose is commercial rather than doctrinal. Lenders would be reluctant to extend credit to a bankrupt borrower if the terms could be unwound on appeal, so the statute permits reliance on the bankruptcy judge's authorization. The opinion cites TMT Procurement Corp. v. Vantage Drilling Co. (In re TMT Procurement Corp.), 764 F.3d 512 (5th Cir. 2014), for that framing.

The first three elements come from the statute and existing Fifth Circuit law. The fourth comes from the rule the court adopted, and it is the part of the opinion that will matter most in future DIP negotiations.

The parties disputed whether section 364(e) applies to the release of claims at all. If it does, everyone agreed the Final DIP Order was not stayed. So the entire appeal turned on scope.

Several Fifth Circuit decisions point toward breadth. In Bank of New York Trust Co. v. Official Unsecured Creditors Committee (In re Pacific Lumber Co.), 584 F.3d 229 (5th Cir. 2009), the court described section 364(e) as forbidding appellate review and preventing the reversal of an order, not merely parts of an order, issued under section 364 to obtain postpetition financing. TMT Procurement stated that failure to obtain a stay of an authorization moots an appeal of that authorization where the lender acted in good faith.

Judge Boyle treats those statements as suggestive rather than controlling, and identifies the ambiguity precisely. It is unclear whether an authorization under section 364 refers to everything in an order purportedly made under section 364, or instead to only certain things, perhaps not including releases of claims. That is the gap the opinion has to fill.

Two Fifth Circuit decisions push toward the broader reading. In AKD Investments, LLC v. Magnolia Investments I, LLC (In re AKD Investments), 79 F.4th 487 (5th Cir. 2023), the court rejected an argument that section 364(e) confines an order to lien-securing terms, saying it has never read the provision to focus myopically on liens, and instead reading it as a stay requirement that moots an appeal of any unstayed authorization under section 364. And in TMT Procurement itself, the Fifth Circuit reasoned that statutory mootness must be assessed before reaching a property-of-the-estate question, regardless of whether that question sounded in statutory authority or subject-matter jurisdiction. Judge Boyle draws the inference from that treatment: if a lack-of-authority argument does not survive section 364(e) there, an argument that the bankruptcy court lacked authority to approve releases does not survive it here.

The opinion then borrows from the sale context. Section 363(m) is the parallel statutory mootness provision for asset sales, and section 364(e) was modeled after it. That lineage lets the court reason from settled circuit law on sales to an unsettled question on financing.

For section 363(m), the Fifth Circuit has expressly adopted as the rule of the circuit that a failure to obtain a stay is fatal, even where the basis for challenging the section 363 order is jurisdictional. The citation is Gilchrist v. Westcott (In re Gilchrist), 891 F.2d 559 (5th Cir. 1990). If that is the rule for sales, the opinion reasons, failing to obtain a stay of a section 364 order is likewise fatal regardless of the basis for the challenge.

This is the structural point restructuring practitioners should take from the opinion. Section 363(m) jurisprudence is far more developed than section 364(e) jurisprudence, and courts facing gaps in the latter will keep reaching for the former. The Genesis opinion is a clean example of how that transfer works in practice.

Outside the Fifth Circuit, the opinion identifies two competing theories of section 364(e)'s scope, and they produce opposite results on these facts.

Under Cooper Commons, any provision of the financing agreement that a lender bargained for, or that helped motivate its extension of credit, is protected. Excising such a provision from the order would affect the validity of the loan, because the provision was part of the exchange that produced the loan. Applied to Genesis, if the releases possibly motivated the lenders to advance funds, section 364(e) bars the court from touching them.

Under Saybrook, a reviewing court asks first whether the bankruptcy court's action was authorized by statute. If it was not, an attempt to reverse or modify that action is not mooted. Applied to Genesis, if approving the releases was not something the bankruptcy court had authority to do, section 364(e) would not bar review.

Judge Boyle concluded that Cooper Commons is likely the rule the Fifth Circuit would adopt, and applied it. Fifth Circuit case law describes section 364(e) as protecting an entire order regardless of the basis for the challenge, and the circuit's treatment of section 363(m) buttresses that reading. Saybrook runs the other way, and the Fifth Circuit has rejected the idea that a party can challenge the bankruptcy court's authority or jurisdiction to act when either mootness provision applies.

The more consequential part of the holding is the limit the court builds into it. Cooper Commons supplies what the opinion calls a commonsense requirement: the challenged aspect of the order must at least have been part of the bargain for the postpetition loan. Without that requirement, merely labeling an order as made under section 364 would control the inquiry, exalting form over substance.

Applying that rule, the court found the releases were part of the bargain that led the lenders to extend postpetition financing. Welltower's brief made the commercial logic plain, arguing that no lender would agree to lend money only to see that money used to pursue claims against it. The appellants did not contest that the releases were important to the lenders' agreement to provide financing.

From there the analysis is mechanical. Modifying or reversing the challenged aspect of the Final DIP Order would affect the validity of the approved loan. The order was not stayed. There is no argument that the lenders failed to act in good faith. Section 364(e) therefore bars the court from granting the requested relief, and the appeal is dismissed as moot.

Note what the court did not decide. It did not hold that the releases were properly granted, that the released parties were appropriately defined, or that the bankruptcy court had authority to approve releases of claims the appellants might have held. The opinion assumes those questions away by holding that section 364(e) forecloses reaching them at all. That distinction matters if the issue reaches the Fifth Circuit.

The Genesis docket reflects a pattern worth noting. The same claimant group whose DIP appeal was dismissed here has prevailed on appeal in these cases on stay-related issues. The notice of appeal from the order extending the automatic stay to non-debtor defendants was filed at Docket No. 1415 by the creditor claimants represented by Rochelle McCullough, LLP and Reddick Law Firm, P.A., the same designation appearing on the amended notice of appeal underlying this proceeding. That appeal produced a vacatur. This one produced a dismissal on statutory mootness rather than a ruling on the merits.

The contrast is instructive. Orders extending or refusing to lift the automatic stay were reviewed, vacated, and remanded. The financing order was not reviewed at all. Nothing in the record suggests the difference lies in the strength of the underlying arguments. The difference is that Congress attached a statutory mootness provision to one category of order and not the other, and no stay of the financing order was obtained.

For parties objecting to financing terms, the operative lesson is about timing rather than argument quality. If you intend to challenge a provision of a DIP order and you do not obtain a stay, this opinion says the merits of your challenge may never be reached. The appellants here framed a narrow, targeted objection to release language and never got a ruling on it. Section 364(e) does not care how good the argument is.

The practical response is to move the fight forward. Contest the scope of releases at the interim and final hearings, build a record on what the lenders actually required as a condition of funding, and seek a stay contemporaneously with any notice of appeal. Under the bargained-for limit this opinion adopts, the record on what motivated the extension of credit is the record that determines whether appellate review remains available.

For debtors and lenders negotiating financing, the opinion cuts the other way and reinforces existing practice. Provisions genuinely bargained for as a condition of funding, and reflected as such in the record and in the court's findings, receive the full protection of section 364(e) in this district under this reasoning. Provisions attached to a financing order for convenience are more exposed, because the bargained-for requirement is doing real work.

For everyone else, the value of the opinion is that it names the split. A district court has now surveyed Cooper Commons and Saybrook, predicted the Fifth Circuit's answer, and explained why. That prediction is not binding on the Fifth Circuit, and the question remains genuinely open there. Anyone litigating section 364(e) scope in the Fifth Circuit now has a reasoned starting point and a clear statement of what has not yet been decided.

On August 11, 2026, PJM Interconnection, L.L.C. and PJM Settlement, Inc. moved for entry of an order appointing a chapter 11 trustee in the jointly administered cases of American Efficient LLC under section 1104(a) of the Bankruptcy Code, or in the alternative an examiner under section 1104(c). The motion is set for hearing on August 26, 2026 before Judge Laura T. Beyer in Charlotte. PJM invokes sections 105(a) and 1104(a) through (c), together with Bankruptcy Rules 2007.1 and 9014, and is represented by Hunton Andrews Kurth LLP.

The timing matters. The debtors filed on July 18, 2026 and moved for debtor-in-possession financing four days later. That financing motion has now been continued twice and is set for special setting on August 21. PJM objected to it on August 5. Six days after that objection, and one day after the Bankruptcy Administrator filed its Notice to 20 Largest Unsecured Creditors, PJM escalated from opposing the financing to asking the court to replace the fiduciary proposing it.

The motion is short by the standards of contested trustee practice, running fifteen pages including the certificate of service. It is short because PJM does not need to build a factual record from scratch. It is asking the court to give weight to findings another federal tribunal has already made.

PJM Interconnection is the regional transmission organization that operates wholesale electricity markets across all or parts of thirteen states and the District of Columbia under FERC-approved tariffs. PJM Settlement is its wholly owned subsidiary and serves as the counterparty for transactions, performing credit, billing, and settlement functions under the tariff. When PJM appears as a creditor in these cases, it appears as the entity that paid the money at issue.

Beginning in 2009, PJM capacity auctions were open to energy efficiency resources on the premise that qualifying efficiency measures would offset future capacity needs. One of the debtors, Affirmed Energy LLC, participated as a provider of those resources starting in 2014, aggregating efficiency attributes associated with energy-efficient consumer products and offering the aggregated resources into the capacity markets.

On April 15, 2026, FERC issued the order the motion refers to as the Penalties Order. According to PJM's description of that order, FERC determined that Affirmed Energy sold PJM "fake capacity" of nearly two gigawatts per year, described in the motion as approximately the annual capacity of two nuclear reactors, in exchange for roughly $500 million in capacity payments it received. FERC found that Affirmed Energy purchased sales data concerning energy-efficient products sold by others and then collected capacity payments as though it had itself caused the qualifying reductions in demand. FERC further determined that Affirmed Energy made multiple false statements and misrepresentations about its operations over a period of years.

FERC ordered disgorgement of more than $407 million in capacity payments to PJM plus interest, and imposed approximately $772 million in civil penalties. The determination applies to each of the debtors. The debtors are contesting the FERC proceedings in the United States District Court for the Middle District of North Carolina, and nothing in the bankruptcy court's disposition of the trustee motion resolves that challenge.

The motion cites United States v. Utah Construction & Mining Co., 384 U.S. 394 (1966), for the proposition that courts may give preclusive effect to administrative findings when the agency acts in a judicial capacity and the parties had an adequate opportunity to litigate. That citation does the heavy lifting. If the court accepts it, the evidentiary contest over prepetition conduct largely collapses into a question of what follows from findings already entered.

The second pillar of the motion has nothing to do with misconduct. It concerns what these estates actually are.

In 2024, FERC approved a tariff amendment eliminating energy efficiency resource participation in PJM's capacity auctions, and the D.C. Circuit affirmed that determination in Affirmed Energy, LLC v. FERC, 166 F.4th 1070 (D.C. Cir. 2026). The debtors' former line of business cannot continue in PJM's capacity market in its prior form. That is not a projection or a contested forecast. It is the settled state of the regulatory regime.

The debtors' own thirteen-week budget, filed July 28, projects no income during the budget period other than proceeds of the proposed debtor-in-possession financing. The budget reflects expenditures for professional fees, insurance, payroll, and other administrative items. On that record, PJM argues, the debtors are operating chiefly to pursue litigation and to respond to the consequences of the Penalties Order.

That framing sets up the deference argument. Courts extend substantial latitude to a debtor in possession pursuing a traditional operating reorganization because management is presumed to be running a business that will support creditor recoveries. Where the projected revenue during the budget period is zero and the former business line has been eliminated by regulation, PJM contends the ordinary rationale for that deference thins considerably.

FERC exposure combines the disgorgement and civil penalty figures described in the motion, exclusive of interest. Assets at filing reflect Research Suite case data. The comparison is directional rather than precise, but it frames the practical question: whether this is a reorganization or a contest over how a shortfall gets allocated.

The third pillar is the proposed financing. The debtors seek approval of a facility from MIH LLC, an insider. As described in the DIP-related pleadings, the facility consists of an initial draw of up to $6,731,359, a delayed draw of up to $3,168,641, and a $1,600,000 bridge financing roll-up. The debtors propose to secure that financing with liens on currently unencumbered assets and on the proceeds of avoidance claims.

The conflict PJM identifies is structural rather than hypothetical. The debtors' schedules reflect more than $1.2 million in insider payments to MIH in the year before the petition date. The same schedules and statements of financial affairs reflect over $600,000 in salary allocated to the debtors' Managing Director and over $2.2 million paid to an affiliate, MEG Staffing, LLC, for management services during that year. Management is therefore asking the court to grant liens on avoidance proceeds to a party that received payments those avoidance actions might target.

The motion also points to the financing's dependence on arrangements outside these cases. The DIP-related pleadings reflect that the facility is tied to MIH's own financing, including a note purchase agreement, an April consent, and a transaction support agreement with MIH's secured parties, and that third-party lenders to MIH exercised substantial control over the structure of the financing, the use of proceeds, and the chapter 11 milestones the debtors must satisfy. The pleadings further reflect that the operative DIP documents were not filed with the court when objections were made, and that debtors' counsel advised the documents were not yet complete when requested.

Section 1104(a) supplies two independent bases for appointment. The court shall appoint a trustee for cause, including fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management either before or after the commencement of the case, or similar cause, or if such appointment is in the interests of creditors, any equity security holders, and other interests of the estate.

PJM argues cause under the first prong on the theory that the question is not whether misconduct occurred in the past but whether current management can be trusted to serve as a fiduciary now. The Fourth Circuit's decision in Committee of Dalkon Shield Claimants v. A.H. Robins Co., 828 F.2d 239 (4th Cir. 1987), supplies the discretion framework. The motion then assembles a line of cases holding that appointment is warranted where management cannot be relied upon to fulfill duties of candor, loyalty, and preservation of estate property, where creditors have reasonably lost confidence, or where conflicts prevent impartial decisions on behalf of the estate.

The authorities PJM leans on are notable for how close to home they sit. In re Drew Transportation Services, Inc., 2016 WL 6892459 (Bankr. E.D.N.C. July 7, 2016), and In re Piedmont Center Investments, LLC, 2011 WL 5903398 (Bankr. E.D.N.C. Sept. 8, 2011), are Eastern District of North Carolina decisions. Gomez v. United States Trustee, 2010 WL 582706 (W.D. Va. Feb. 18, 2010), and In re El Rafaei, 2022 WL 2911429 (Bankr. E.D. Va. July 22, 2022), are Fourth Circuit district and bankruptcy decisions. In re Marvel Entertainment Group, Inc., 140 F.3d 463 (3d Cir. 1998), supplies the out-of-circuit anchor on both prongs.

PJM concedes the burden. The moving party must establish the need for a trustee by clear and convincing evidence, citing Marvel and In re Euro-American Lodging Corp., 365 B.R. 421 (Bankr. S.D.N.Y. 2007). That concession is why the Penalties Order does so much work in the motion. Clear and convincing evidence of prepetition dishonesty is a heavy lift on a record this young if it has to be built through discovery. It is a considerably lighter lift when a federal agency has already entered findings after an adjudicative proceeding.

PJM presents the second prong as genuinely independent rather than as a rhetorical fallback, and the distinction is the analytically interesting part of the motion. Section 1104(a)(2) does not require a finding of fault. It turns on the practical realities and necessities of the case and permits appointment whenever an independent fiduciary is needed in the interests of creditors and the estate.

Under the second prong the motion advances four points in sequence. Creditor confidence in management is impaired where management remains in possession after adverse regulatory findings and now seeks insider financing that would encumber unencumbered assets and avoidance proceeds. The absence of operating revenue narrows the deference ordinarily afforded a debtor pursuing a traditional reorganization. The insider proposal creates a conflict that management cannot resolve in its own favor. And the benefits of appointment would be substantial, because a trustee could independently evaluate the financing, investigate insider transactions, assess estate claims, and make a neutral recommendation on whether these cases should proceed toward reorganization, liquidation, settlement, or some combination.

PJM frames the cost-benefit conclusion carefully. A trustee would not be appointed to displace a functioning reorganization led by trusted management. A trustee would be appointed because these estates presently require credibility, neutrality, and independent judgment before further significant decisions are made. That framing is designed to answer the standard objection that a trustee is expensive and disruptive. The response is that there is little functioning reorganization to disrupt.

If the court declines to appoint a trustee, PJM asks for an examiner under section 1104(c). The statutory hook is straightforward. Where the court does not appoint a trustee, it shall order the appointment of an examiner if appointment is in the interests of creditors and the estate or if the debtor's fixed, liquidated, unsecured debts exceed $5 million. Given the disgorgement and penalty figures, the debt threshold is not a serious question in these cases.

The proposed mandate is specific, which distinguishes it from examiner requests that ask for an investigation without defining one. PJM proposes that the examiner investigate current management's role in the conduct described in the Penalties Order and whether that conduct bears on management's ability to continue serving as a fiduciary, the negotiation and structure and fairness of the proposed insider facility, prepetition insider payments and other affiliate transactions reflected in the schedules and statements, the nature and value of any estate claims against insiders or affiliates or third parties, and the debtors' actual restructuring prospects in light of the elimination of energy efficiency resource participation and the projected absence of operating revenue.

The examiner request also functions as a settlement of expectations for the court. A judge reluctant to displace management three weeks into a case on a paper record has an intermediate option that produces an independent report without transferring control of the estates. PJM's supporting citations, including In re First American Health Care of Georgia, Inc., 208 B.R. 992 (Bankr. S.D. Ga. 1996), and In re Residential Capital, LLC, 474 B.R. 112 (Bankr. S.D.N.Y. 2012), are aimed at that middle path.

The first footnote of the motion does more work than its placement suggests. Based on the Bankruptcy Administrator's Notice to 20 Largest Unsecured Creditors, filed August 10 at Docket No. 61, PJM states that it appears there will not be a committee in these cases who could undertake the review PJM is describing. That is PJM's reading of the notice rather than a determination by the Bankruptcy Administrator, though Research Suite case data likewise reflects no creditors' committee appointed to date.

That footnote closes the obvious response to a trustee motion. The usual answer to a creditor demanding an investigation of insider transactions and financing conflicts is that the official committee, funded by the estate and armed with standing and discovery, exists precisely to perform that function. In these cases that answer is unavailable. The Western District of North Carolina uses a Bankruptcy Administrator rather than a United States Trustee, and while the Bankruptcy Administrator filed a limited objection to the financing on July 27, that office does not perform the investigative role of an appointed committee.

The second footnote raises a separate issue and then declines to press it. PJM notes that the debtors' petitions identify Durham, North Carolina as their principal place of business, and that the resolutions filed with the petitions authorized bankruptcy filings in the Middle District of North Carolina rather than in the Western District where the cases were commenced. Durham sits in the Middle District. The motion suggests the court should consider whether transfer of venue is appropriate when any basis for the filings in this district is revealed.

PJM expressly does not ask the court to resolve venue through this motion. It uses the discrepancy for a narrower purpose, arguing that unresolved questions about authorization and venue underscore the need for an independent fiduciary to evaluate how these cases were commenced, for whose benefit, and under whose control.

Preserving the venue point rather than pressing it is a deliberate choice. A venue motion decided against PJM would resolve nothing about governance. A venue question left open contributes to the atmosphere of unresolved authorization that supports the section 1104(a)(2) argument, and it remains available later.

The sequencing of the two hearings is the first thing to watch. The financing motion is set for August 21 and the trustee motion for August 26. If the court approves the insider facility on final terms before reaching the governance question, the liens on unencumbered assets and avoidance proceeds are in place and a later-appointed trustee inherits a smaller field of action. If the court defers the financing again, the governance question gets decided first and on a fuller record. Continuances in this case have not been neutral scheduling events.

The preclusion question is the second. PJM is asking the bankruptcy court to accept FERC's findings as findings rather than as allegations, while the debtors are contesting those same proceedings in the Middle District of North Carolina. How Judge Beyer treats the Penalties Order will shape more than this motion. It will shape what the debtors have to prove, and where, for the remainder of the case.

The third is whether the examiner alternative becomes the actual outcome. Trustee motions filed within a month of the petition date, on a record built from another tribunal's findings rather than from discovery, are difficult to win outright. The clear and convincing standard is real. But PJM has structured the request so that the court can decline the trustee and still order the investigation, and the absence of a committee removes the most common reason to say no to both.

Watch also for the debtors' response. The motion recites that operative DIP documents were not filed when objections were made and that counsel advised the documents were not yet complete. Whether those documents are on file before August 21 will tell you a good deal about how the financing hearing goes, and by extension how the trustee hearing goes five days later.

Vi-Jon, LLC filed a voluntary Chapter 11 petition in the United States Bankruptcy Court for the District of Delaware on August 2, 2026, and it filed with the deal already in hand. Three days earlier, the debtor executed a restructuring support agreement with its non-debtor parent and affiliates, a prepetition future claimants’ representative, and the plaintiffs’ firms whose clients hold the overwhelming majority of the talc personal injury claims asserted against it.

The agreement contemplates a plan that channels every current and future talc claim into a trust established under section 524(g) of the Bankruptcy Code. The trust would be funded by a guaranteed $25 million cash contribution from non-debtor affiliates, together with assigned insurance rights, a $1 million promissory note from the reorganized debtor, net proceeds of a real estate sale, assigned causes of action, and a contingent settlement fee tied to a future sale of the corporate parent. In exchange, the channeling injunction and related releases would extend beyond the debtor to the non-debtor affiliates and their related parties.

There is no debtor in possession financing. The debtor entered the case with approximately $1,650,000 in cash on hand and intends to fund administration through an amended prepetition keepwell arrangement with its affiliate, under which roughly $8.1 million in undrawn capital commitments would be advanced once the interim cash management order is entered.

The schedule the parties agreed to is aggressive. A plan and disclosure statement are due 30 days after the petition date, disclosure statement approval at 70 days, solicitation at 75 days, confirmation at 110 days, and consummation at 120 days. The restructuring support agreement terminates automatically nine months after execution if the effective date has not occurred.

Case at a Glance

The most useful thing to understand about Vi-Jon is the mismatch between the size of the business and the size of the liability it carries. This is a private-label dry bath products company selling Epsom salts and body powder to retailers including Amazon, Dollar General, Kroger, TopCo, and Walgreens. Total net sales were approximately $26 million in 2025, with approximately $21 million expected in 2026. Adjusted EBITDA was approximately $700,000 in 2025, expected to fall to approximately $300,000 in 2026.

As of the petition date, the debtor had one full-time salaried employee, a vice president and general manager, and one independent contractor providing litigation support.

Everything else is outsourced to affiliates. Manufacturing runs through a co-manufacturing agreement, and management, human resources, finance, information technology, legal compliance, risk management, insurance, employee benefits, and tax services run through two administrative services agreements. The debtor owns a single non-operational manufacturing plant in St. Louis, referred to in the filings as the Etzel Property, which is slated for sale with the net proceeds contributed to the trust.

Customer concentration is high. The two largest customers accounted for nearly 50% of net sales in both 2024 and 2025. Epsom salt products represent roughly 65% of total annual net sales.

Corporate History

The company traces to 1908 as the Peroxide Specialty Company, rebranding as Vi-Jon Laboratories Inc. in 1933 and expanding into private-label cosmetic and personal care products in the 1960s. In 2006, Berkshire Partners LLC acquired a controlling interest and Vi-Jon Laboratories merged with Cumberland Swan Holdings, Inc. That merger matters for insurance purposes, because it brought with it rights under policies Cumberland Swan purchased from July 31, 1999 through July 31, 2006. In 2020, Berkshire consummated the ESOP Transactions, making the enterprise 100% employee-owned, and Vi-Jon, Inc. became Vi-Jon, LLC.

The declaration identifies a single primary driver of the filing, and it is not operational. Claims filed against the debtor increased by approximately 400% since 2023, driven largely by plaintiffs’ counsel adding the debtor to pre-existing cases in which it had not initially been named. Twenty-eight law firms filed talc-related claims against the debtor for the first time following the 2023 liability forecast. At the same time, average settlement costs increased substantially and dismissal rates decreased substantially.

Then two verdicts landed within eight weeks of each other. On May 15, 2026, a jury returned a $10.2 million verdict in Heyer v. A.H. Bennett Co., with 20% apportioned to the debtor and subject to certain setoffs. On July 7, 2026, judgment was entered against the debtor in Ludwig v. Sumitomo Corp. of Americas in the amount of $16,750,487. The $10.2 million figure is the full Heyer verdict rather than the debtor’s share, but the declaration nonetheless lists approximately $20 million of litigation judgments from these two matters among the debtor’s unsecured obligations. That is the exposure carried by a company projecting approximately $300,000 of adjusted EBITDA.

The commercial picture deteriorated alongside the litigation. The debtor lost a significant portion of its body powder business in October 2025. Quarterly body powder net sales had run at approximately $2.4 million during 2024 and 2025 and fell to approximately $662,000 in the first quarter of 2026.

What makes the claim volume notable is that the underlying conduct stopped a decade ago. The debtor permanently discontinued production and sale of talc products in 2016, having temporarily discontinued sales between 1995 and August 1999. Its average market share for talc products between 1975 and 2015 was 13.2%, with peak sales of approximately 20 million units in 2003. The debtor disputes all talc-related liabilities and maintains that its talc products were safe.

You cannot read this case without understanding the transaction that shaped it. In late 2023, the enterprise separated the dry goods business from everything else it owned, and the exhibits filed with the declaration lay out the mechanics in four phases.

In the refinancing phase, Vi-Jon formed VH Finance, LLC and Vivos Holdings, LLC. Vivos entered a new financing arrangement, distributed the proceeds up the chain to Vi-Jon, and Vi-Jon repaid its existing lenders. In the post-refinancing distribution phase, Vi-Jon contributed the equity of VH Finance to an intermediary holding company and then contributed substantially all of its assets to Vivos, retaining only the dry goods business. In the asset transfer phase, Vi-Jon distributed the equity of Vivos to VH Finance, and Vivos formed UpLift Brands, LLC, Consumer Product Partners, LLC, and INSPR Labs, LLC, moving branded inventory and intellectual property to the first and the remaining assets to the second. In the pre-reorganization phase, Vi-Jon Holding, Inc. became Emprise Group, Inc. and the intermediary holding company became Emprise HPC, LLC.

What remained at Vi-Jon was the Epsom salts and body powder business, the Etzel Property, and the talc liability. What backstopped it was the Keepwell Agreement, executed December 28, 2023, under which Emprise HPC committed to provide up to $25 million in equity contributions.

The 2023 transaction is also why the funded debt in this enterprise sits outside the debtor. The current organizational chart identifies Emprise Group as borrower or issuer under a prepetition asset-based lending facility and a first lien facility, with Emprise HPC as guarantor, and Emprise HPC as borrower under a second lien facility with Emprise Group as guarantor. Vi-Jon itself has no secured debt.

The analytical center of this case is a pair of numbers produced by the same expert three years apart. NERA prepared a series of liability forecasts for the enterprise between June 2020 and May 2026. The 2023 forecast, which was used to size the keepwell obligations, ran two scenarios. The 2026 forecast, prepared in May of this year, ran one.

The declaration attributes the revision to three factors: a substantial increase in the number of claims, lower dismissal rates, and increased average settlement amounts. Each of those inputs moved in the same direction at the same time, which is how a forecast changes by an order of magnitude rather than a margin.

The balance sheet is unusually clean for a Chapter 11 debtor, which is a direct consequence of the 2023 transaction. Vi-Jon has no secured debt and no accrued outstanding third-party trade accounts payable as of the petition date. Its obligations are litigation, indemnification, professional fees, and intercompany.

The unperfected security interest on the Emprise advance is worth flagging. The declaration states plainly that the interest was never perfected. The plan term sheet assigns chapter 5 preference causes of action to the trust among the assigned causes of action, so the disposition of that advance is a question the trust would inherit rather than one the plan resolves on its face.

The retailer indemnification claims deserve equal attention. Approximately $15 million of contingent indemnification exposure runs to customers under agreements requiring the debtor to defend, indemnify, and hold harmless those customers from claims arising out of products it sold. Those customers are not affiliates and, as Section X describes, the term sheet expressly declines to extend the automatic stay to them absent consent.

By stated limits, insurance dwarfs every other component of the trust. From 1965 through October 31, 2016, the debtor and its predecessors purchased over $900 million of general liability, products liability, and umbrella coverage. The aggregate limit attributable to insurers who are currently solvent is approximately $900 million, with fewer than $20 million in limits issued by insurers now insolvent.

Under the plan term sheet, the debtor assigns its rights under the talc insurance policies to the trust, and the non-debtor affiliates contribute their own rights under those policies as well. The channeling injunction is to be structured to preserve and maximize the value of those rights, and the non-debtor affiliates waive any liens on the real property and sale proceeds. A coverage adversary proceeding cannot be commenced without the reasonable consent of Emprise before the effective date, and of the claimants’ representatives or committee and the future claimants’ representative.

Emprise commits $32 million of cash on the effective date, of which $25 million funds the trust and $7 million funds case administration in accordance with an agreed budget. The declaration describes that $7 million as exit financing; the term sheet describes it as part of the effective date contribution to be used per the budget. Layered on top is approximately $8.1 million of remaining undrawn capital commitments under the amended keepwell agreement, to be advanced following entry of the interim cash management order and not subject to repayment. Total committed cash across the case is approximately $40.1 million.

Trust Assets

The Contingent Settlement Fee

The settlement fee is the most structurally interesting piece of the package. It equals 50% of the first $40 million of gross consideration above $1 billion in a sale or merger of Emprise, capped at $20 million, and it is payable only if that transaction occurs at an enterprise value at or above $1 billion. The trust receives consultation rights on the computation, including enough information to assess the enterprise value calculation.

The effect is to give claimants a participation in future enterprise upside without giving them equity in Emprise and without imposing a fixed obligation on a business that may never transact. It also creates a monitoring problem the parties addressed directly, since the fee turns entirely on a valuation the payor controls.

Transfers Under the Plan

Two asset transfers sit inside the structure. A material set of the debtor’s assets, to be scheduled in a plan supplement, transfers to Emprise HPC, LLC or another non-debtor affiliate or designee under section 1123(a)(5)(D), in exchange for the monetary and non-monetary contributions described above. Separately, the real property is to be sold during the case under section 363 or under the plan under section 1123(a)(5)(D), with the parties intending to qualify for the section 1146(a) exemption from stamp and transfer taxes. If that sale is not consummated or requisite consent is withheld, the claimants’ representatives or the official committee may elect to have the real property itself contributed to the trust.

Whenever a debtor releases the affiliates that received its assets three years before it filed, the record supporting that release becomes the most examined part of the case. The declaration devotes several pages to building that record.

On April 1, 2026, the board adopted unanimous consents establishing a special committee and adopting a charter designating two independent directors as its members. The charter delegated to the committee exclusive authority over the relevant matters. On April 16, 2026, the committee directed a Sidley litigation partner to investigate potential claims against the debtor’s equity holders, affiliates, directors, managers, and officers, expressly including alter ego, veil piercing, successor liability, actual fraudulent transfer, and constructive fraudulent transfer. The investigation included diligence requests covering the books and records underlying the 2023 restructuring transaction and the emails of key employees, along with interviews of management at the debtor, Emprise, and Vivos.

The declaration does not disclose the committee’s conclusions. It discloses the outcome. As part of the restructuring support agreement, and in exchange for the affiliates’ contributions to the trust and to the case, the debtor agreed to release, under a confirmed plan, all claims and causes of action arising out of the 2023 restructuring transaction and all other estate claims and causes of action against the non-debtor affiliates.

What Survives

Claims relating to the 2020 ESOP Transaction are preserved, but only against a defined set of Excluded Parties: Berkshire Partners LLC, Berkshire Fund VI Limited Partnership, Berkshire Investors LLC, Berkshire Investors III LLC, and Brunner-family related entities and individuals. Those claims are assigned to the trust alongside insurance-related claims, talc-related claims, and chapter 5 preference actions.

Procedurally, the plan is deemed a motion to approve the estate claims settlement, and entry of the confirmation order constitutes court approval under section 1123 of the Bankruptcy Code and the applicable rules. That means the settlement of the estate’s claims against the affiliates would be adjudicated through confirmation rather than through a standalone contested motion earlier in the case.

Section 524(g) requires acceptance by at least 75% in number of the claimants whose claims are to be channeled. That requirement is the reason this case was negotiated before it was filed, and it explains the composition of the supporting party group.

The two source documents describe that support slightly differently, and the difference is worth noting precisely. The restructuring support agreement recites that the eight signatory Talc Claimants’ Representatives collectively represent at least 75% of holders by number, with a joinder mechanism allowing additional firms to become parties. The declaration describes the Ad Hoc Plaintiffs’ Group as nine plaintiffs’ counsel representing more than 80% of holders of talc-related claims. Either way, prepetition support sits at or above the statutory floor, and the margin above that floor is thin enough to matter.

The signatory firms agreed to support the plan, to recommend that their clients vote in favor and not opt out of the third-party releases, and, where they hold a specific power of attorney authorizing them to vote on a bankruptcy plan, to exercise it accordingly. Ballots will contain an opt out with respect to releases of talc claims against the non-debtor affiliates, or an opt in if the court does not permit an opt out.

Scope of the Injunction

The channeling injunction would permanently enjoin talc claims against the debtor, the reorganized debtor, the non-debtor affiliates, and each of their related parties, channeling them exclusively to the trust. Related parties is defined broadly to include current and former officers, directors, shareholders, lenders, employees, professionals, agents, consultants, and their assignees, predecessors, and successors. The trust indemnifies the non-debtor affiliates and their related parties against talc claims, and no claimant may receive a distribution without first delivering a written general release in a form acceptable to those parties.

Before the effective date, the debtor may file an adversary proceeding seeking a preliminary injunction and temporary restraining order extending the automatic stay to the non-debtor affiliates and their related parties. The claimants’ representatives and the prepetition future claimants’ representative agreed not to oppose it.

The Customer and Retailer Carve-Out

Customers and retailers were treated differently, and deliberately so. Absent consent of the claimants’ representatives or the official committee and the future claimants’ representative, neither the debtor nor Emprise will settle with or support relief for any customer or retailer, including any attempt to extend the automatic stay or enjoin talc claims against them, and neither will seek or support removal of talc claims against those entities to federal court. Commercial accommodations remain permitted, provided they do not settle, release, channel, or enjoin any talc claim against the customer or retailer.

Read against the approximately $15 million of retailer indemnification exposure disclosed in the declaration, that carve-out leaves the debtor’s customers exposed to continued litigation and leaves their indemnification claims against the estate outside the resolution the trust provides.

The parties built a 120-day case and then built the cost controls to match it. That pairing is intentional. When the trust corpus is fixed at $25 million of guaranteed cash, every dollar of administrative expense is a dollar that does not reach claimants, and the term sheet says so directly: the transactions will not be feasible or in the best interests of claimants unless the process is undertaken on a cost-efficient basis.

The controls themselves are unusually specific for a first day record. Professionals of the company, the official committee of unsecured creditors, and the future claimants’ representative are each subject to a budget and an agreed aggregate cap on fees to be incurred and allowed during the case, reflected in a budget that may be amended only with Emprise’s consent. A weekly budget variance report goes to Emprise, the committee, and the future claimants’ representative, setting out actual non-operating expenditures against budget with an explanation of material variances, certified by the chief restructuring officer. The parties also agreed that a solicitation process similar to the protections in Miyoshi America would be considered commercially reasonable.

Fiduciary outs are preserved throughout. The company’s board of managers or special committee may deviate from the agreement if it determines in good faith, on advice of counsel, that its fiduciary duties require it, and the official committee and the official future claimants’ representative reserve the same rights.

If the plan is confirmed as contemplated, the outcomes divide cleanly. The following reflects the framework set out in the restructuring support agreement and plan term sheet, all of which remains subject to negotiation of definitive documents, court approval, and confirmation.

What makes this case worth following is not its size. It is the structure. A liability that outgrew the vehicle built to contain it, a forecast revised by an order of magnitude, a fixed contribution that did not move with it, and a settlement that trades estate claims for the certainty of cash. Those are the questions section 524(g) practice has been working through for a decade, presented here at a scale small enough to see all of the moving parts at once.

Both plans are off the table. On August 4, 2026, the United States Bankruptcy Court for the District of Maryland denied approval of the two competing disclosure statements in the Chapter 11 case of the Roman Catholic Archbishop of Baltimore, holding that neither satisfies section 1125 of the Bankruptcy Code and that each describes a plan of reorganization that is patently unconfirmable. The denial was entered without prejudice. As a scheduling matter it was decisive.

The Court had set a confirmation hearing to begin on September 14, 2026, which required solicitation packages to be mailed on or before August 10, 2026. The order states plainly that the Court does not find adequate time to consider amended competing disclosure statements before that date, and that the deficiencies in the pending documents are too significant to justify having the parties spend more time or money on them in their current form. Six days is not a revision cycle. The confirmation schedule the Court described as tight by design has now been overtaken by the substance of what was filed against it.

The immediate consequence extends beyond the calendar. In March 2026, seven survivors of child sexual abuse moved for relief from the automatic stay to pursue their claims in the Maryland state courts. The Court did not decide those motions. It continued them, along with the automatic stay itself, to September 30, 2026, on the theory that a firm confirmation schedule gave the parties a short runway to reach a global, consensual resolution before the status quo changed. That runway is now shorter than the parties assumed, and the September 30 date arrives with no approved disclosure statement, no solicitation, and no confirmation hearing in front of it.

The Roman Catholic Archbishop of Baltimore is operating as a debtor in possession under section 1107 of the Bankruptcy Code. It is the only debtor before the Court. That fact does a great deal of work throughout the order, because much of what both plans propose depends on entities that have not filed and are not subject to the Court’s in rem jurisdiction.

The creditor body is unusual in composition and central to how the Court reads the disclosure obligation. All members of the Official Committee of Unsecured Creditors are survivors of child sexual abuse. The Court treats that composition as the reason sections 1125 and 1129 matter here in the first place, noting that those provisions exist in large part to protect the creditors of the estate, which in this case are primarily survivors. The remaining constituencies are the Debtor’s insurance carriers, an Ad Hoc Committee of Parishes, Schools, and Affiliates, and the Covered Parties, meaning the related entities included as additional insureds under the Debtor’s current and legacy insurance programs.

The filing was a direct response to legislation. In April 2023, the Maryland General Assembly passed the Maryland Child Victims Act, which eliminated the statute of limitations on civil lawsuits involving child sexual abuse. The Debtor filed its Chapter 11 petition on September 29, 2023, two days before the statute took effect on October 1, 2023. On the petition date, the Debtor also moved to extend the automatic stay to the Covered Parties under its insurance programs.

The Court granted that relief on an interim basis and then continued it under a Second Interim Order extending the automatic stay to certain related entities. That order has now been in place for nearly three years. The order under review identifies this as the source of the current posture. Three years of stay protection for both the Debtor and a set of nondebtor entities, periodic mediation among the Debtor, the Committee, and the Insurers, litigation in the main case and in two separate adversary proceedings, and still no plan proposing a global resolution. What the Court has instead is two competing plans and, in its own description, relatively little agreement on the best path forward.

Length is not the holding, but it is the entry point. The Court found that each document provides an appropriate level of detail about the key prepetition and postpetition events concerning the Debtor, so the deficiencies it identified are not a failure to cover the history of the case. The Debtor’s amended disclosure statement runs 54 pages without exhibits. The Committee’s third amended disclosure statement runs 158 pages without exhibits. The Court took 16 pages to explain why neither works.

Section 1125(a)(1) requires information of a kind, and in sufficient detail, that would enable a hypothetical investor of the relevant class to make an informed judgment about the plan. The determination is case by case and largely within the discretion of the bankruptcy court. The Court applies that standard here through a formulation borrowed from an older decision: a disclosure statement must be meaningful to be understood, and it must be understood to be effective.

The Court credits counsel for trying to address pending objections and legal hurdles by building optionality into the plans and adding disclosure to the documents. It then explains why those efforts backfired. Both documents grew to the point where information gets lost or confused inside them, both carry defined terms and legalese that complicate an already complicated plan structure, and both are internally inconsistent in certain respects. The United States Trustee had flagged inconsistent and inaccurate information regarding the third-party releases in the Debtor DS, and had described the Committee’s excessive use of defined terms as rendering the plan incomprehensible and the disclosure statement that describes it lacking in adequate information.

The sentence that carries the Court’s point most directly is the one addressed to the audience for these documents. Creditors should not need lawyers or translators to read a disclosure statement or understand a proposed plan of reorganization. In a case where the primary creditors are survivors voting on the treatment of their own claims, that observation is not a stylistic preference. It is the statutory purpose.

The second half of the analysis is separate from disclosure quality and independently fatal. A court may disapprove a disclosure statement where the underlying plan is clearly unconfirmable, and the Court found provisions in both plans that make a confirmation hearing on them futile. Not every section 1129 element belongs at the disclosure statement stage, and the order says so. Certain defects are severe enough that soliciting votes would waste estate resources and further delay any recovery for creditors.

The most consequential ruling in the order concerns three trusts. The Debtor’s plan includes only a small fraction of the value of its Sexual Misconduct Insurance Program Trust in plan distributions, and excludes the value of its General Insurance Program Trust and its Health Benefits Program Trust entirely. Those exclusions flow through to the section 1129(a)(7) liquidation analysis, which is where the Court found the disparity.

The Court had already told the parties where it was headed. In its July 13, 2026 statements, incorporated into the August 4 order as if fully rewritten, the Court found that based on the plain language of the trust documents, Maryland law, and section 541(c)(2), the insurance trusts do not appear to be valid spendthrift trusts protected by that subsection, and that any discretionary aspects of the trustee’s powers do not appear to change the analysis. The trusts appear to be property of the Debtor’s estate.

Two doctrinal points sit underneath that conclusion, and both are stated at a level of generality that makes them portable to other diocesan cases. First, section 1129(a)(7) sets a floor a debtor must clear, not a measure of what an adequate or fair and equitable distribution looks like. Clearing the hypothetical Chapter 7 comparison does not establish that the proposed distribution is enough. Second, and independent of valuation, a debtor must disclose all of its assets and explain how those assets affect valuation. Any interest the debtor holds in property becomes property of the estate on the petition date under section 541(a), and the order states the consequence in one line: the debtor does not get to decide unilaterally what assets it discloses or makes available for distribution to creditors.

That is a disclosure holding as much as a substantive one. Even where the Debtor believes an asset is unavailable to creditors, the asset and its value must appear in the disclosure statement, together with the Debtor’s explanation of why it is excluded. The Court suggested the Debtor take a hard look at its asset base and identify, perhaps in a schedule, any assets in which the estate might have an interest and the basis for excluding them.

The Debtor DS also fails to articulate clearly how creditors may collect against the insurance assets. Objecting parties argued that any disclosure statement must contain adequate information about settlements with insurers and explain the effect of those settlements on the plan and on creditors’ collection rights. The Court agreed, and added a related point about the release architecture. Setting aside the legality of the proposed release, injunction, and gatekeeping provisions, which it reserved for confirmation, the Court found that the Debtor DS does not explain what happens if a creditor declines to grant a release, whether that jeopardizes any insurance settlement or the plan itself, and how a creditor is supposed to assess that risk. If a creditor cannot assess it, the consensual character of the release is itself in question.

The second defect in the Debtor’s plan is structural. The plan places general unsecured creditors into three separate impaired classes, each holding the same priority of distribution under applicable nonbankruptcy law and the Code, and proposes very different treatment across them.

Section 1122(a) permits a claim to be placed in a class only if it is substantially similar to the other claims in that class. Section 1123(a)(4) requires the same treatment for each claim within a class. The Code does not require that all substantially similar claims be placed together, but courts generally require valid business, legal, and factual reasons to justify separate classification, and the Fourth Circuit has held that separate classification may only be undertaken for reasons independent of a debtor’s motivation to secure the vote of an impaired, assenting class. The purpose of the limit is to prevent a debtor from finding a few cooperative impaired creditors and placing them in a class of their own.

The Class 5 mechanics are the part practitioners will read twice. A class the debtor can pay in full is rendered impaired by withholding postpetition interest, and the resulting impairment supplies a voting class. That maneuver is familiar. What is notable is that the Court reached it at the disclosure statement stage rather than reserving it for confirmation, and concluded that under the particular circumstances of this case the classification scheme renders this version of the plan unconfirmable.

The order also folds in a disclosure point that will interest anyone tracking diocesan cases. The Committee raised the Debtor’s commitment to enhanced child protection protocols, framing it as a confirmation issue. The Court took it up as a disclosure issue instead. Given the events that led to the filing and the nature of the majority of claims, a hypothetical reasonable investor would want to understand the Debtor’s position on enhanced child protection protocols and how they would be implemented under the plan. That information, in the context of this case, is reasonably related to the ability of creditors to cast informed votes. Nonmonetary plan commitments become part of the adequate information analysis when the creditor body is voting on them.

The Committee’s plan fails on a different axis. It includes language suggesting that nondebtor entities may be substantively consolidated upon the occurrence of certain events. The Court had already stated that it will not substantively consolidate the Debtor with its nondebtor affiliates on an involuntary basis, and it repeated the holding here: the proposed action violates the express terms of the Bankruptcy Code and renders the plan unconfirmable under section 1129(a)(3).

The Committee’s response was that its plan seeks consolidation only of debtor entities or entities that consent. The Court found that this does not change the analysis at the present stage, and the reasoning is arithmetic before it is doctrinal. There is one debtor before the Court. The Committee has presented no evidence, and articulated no basis for believing, that other entities affiliated with the Debtor will file Chapter 11 cases or voluntarily contribute their assets to the plan. A structure that depends on those events is a structure built on conditions that have not occurred and that no party before the Court can compel.

The Court situated the ruling in a line of authority that restructuring professionals in mass tort and diocesan cases will recognize. The Eighth Circuit’s decision in the Archdiocese of Saint Paul and Minneapolis case declined substantive consolidation of nondebtor nonprofit entities. Courts describe substantive consolidation as an extraordinary remedy grounded in equity, and consolidation reaching a nondebtor requires an even more cautious application of the usual test. The order also cites the Supreme Court’s discussion of section 1123(b)(6) in Harrington v. Purdue Pharma L.P., and notes that sections 1123 and 1129 are focused on the debtor and property of the estate.

The distinction the Court draws is worth isolating, because it is not a blanket rule against creditor plans. A nondebtor plan proponent such as a committee can fund a plan with property of the estate. That is different from a plan that reaches entities, or the assets of entities, not currently before the Court and not subject to its in rem jurisdiction. The line is jurisdictional rather than structural. Who proposes the plan matters less than what the plan proposes to reach.

Feasibility follows from the same facts. A plan must be reasonably likely to succeed on its own terms without a need for further reorganization, and plan funding that is too speculative renders a plan patently unconfirmable. The Court found the Committee’s conditions speculative and lacking a legal basis, and held that a plan relying on nondebtor participation without the consent or commitment of those parties is speculative, uncertain, and potentially misleading to creditors. Each corporation remains a separate legal entity with its own debts and assets, even when affiliated.

The Committee’s treatment of insurance assets drew a separate finding. Regardless of the proponent, any plan must comply with applicable law in the treatment and transfer of insurance rights and policies. The Court found that the transfer and trust provisions of the Committee’s plan create issues that currently render it unconfirmable under section 1129(a)(3).

Objecting parties argued that the Committee DS is incomplete and redacts a large portion of potentially relevant information. The Court agreed with the general principle and then narrowed it in a way that cuts against the Committee twice.

On the first point, a disclosure statement and plan cannot go out for solicitation with redacted information. The purpose of the document is to inform creditors’ votes, and withholding information from the solicitation package undercuts the objective of section 1125.

On the second point, the Court held that where the redacted information concerns the separate assets and liabilities of nondebtor parties, that information is not necessary or appropriate in a disclosure statement concerning the debtor, absent special circumstances. Two exceptions are identified. A disclosure statement may include information about a nondebtor entity that is voluntarily providing plan funding, and it may include such information where relevant to valid claims or causes of action asserted by the estate.

What a disclosure statement cannot do is described directly. It cannot be used to disseminate information about a nondebtor entity for the purpose of prodding a settlement, to impose bankruptcy-like disclosures on that entity, or to confuse creditors voting on the plan. The Court identified the last of these as its particular concern here, because the Committee DS contains financial information regarding entities that are not before the Court and suggests potential contributions from them. Unless and until such an entity agrees to the disclosures, becomes a debtor, or is shown to hold assets of this estate, that information does not belong in the document.

The practical effect is that the Committee cannot solve its redaction problem by unsealing. Unredacting the nondebtor financial information would cure the solicitation defect and deepen the impermissible-content defect at the same time. The path forward requires deciding which entities the plan actually depends on and obtaining their consent, not adjusting what the document reveals about them.

The order is unusually well marked for anyone building a brief on disclosure statement denial or on the treatment of nondebtor assets in a diocesan case. The citations cluster around five questions.

The denial is without prejudice, and the order is explicitly interim in nature so that it does not foreclose future efforts to obtain approval of a disclosure statement. Nothing prevents either proponent from filing again. The question is what a revised filing would have to look like.

For the Debtor, the work is concentrated in the liquidation analysis and the asset schedule. The insurance trusts have to be addressed on the Court’s stated view that they appear to be property of the estate, which means either including more value in distributions or building a record that survives the section 541(c)(2) analysis the Court has already run once. The classification scheme has to be rebuilt or justified on grounds independent of creating an impaired accepting class. The disclosure gaps around insurer settlements, collection rights, release mechanics, and child protection protocols are addressable, but they cut against the instruction to shorten and simplify, which is the tension the Debtor now has to resolve.

For the Committee, the problem is harder because it is not primarily a drafting problem. A plan that reaches nondebtor affiliates cannot be redrafted into confirmability while those entities remain outside the case and outside the Court’s jurisdiction. Either affiliated entities file, or they consent and commit, or the plan has to be rebuilt around property of this estate. The redacted nondebtor financial information has to come out of the document rather than be revealed in it.

The closing paragraph of the order reads as an instruction rather than a criticism. The Court encouraged both proponents to step back and assess what kind of plan will work in this case and how best to describe that plan to all creditors, and observed that the most brilliant, intricate, and innovative plan will mean little if the people affected by it do not understand it or how it works. In a case where the creditors are survivors and the vote is on the treatment of their own claims, comprehensibility is not a drafting courtesy. It is the thing section 1125 was written to require.

On August 7, 2026, Bankruptcy Judge Kyu Y. Paek held that approximately $17.56 million held in Sleep Number’s deferred compensation trust is property of the estate, and directed the trustee to transfer the remaining trust assets to the debtors. The money had been set aside years earlier to pay deferred compensation to a select group of management or highly compensated employees. Under the decision it is general estate property, available to satisfy claims across the unsecured creditor body rather than reserved for Plan participants.

The decision came in a case that has moved quickly. Sleep Number filed in the Southern District of New York on June 12, 2026, pursued a sale of the company as a going concern on an expedited schedule, and obtained approval of a sale to the winning bidder, SNBR, Inc., for $701,800,000 on July 21, 2026. The deferred compensation motion was filed while that sale process was running, and it drew a single objection, from a former employee appearing pro se who is owed roughly $107,000.

For Plan participants, the practical consequence is a deadline rather than a distribution. The decision expressly preserves the right of every participant to file a general unsecured claim, and the bar date is September 10, 2026. The decision directs debtors’ counsel to upload the proposed order previously docketed at ECF Doc. # 479, with revisions noting entry of the Memorandum Decision, so the transfer proceeds under that conforming order.

Sleep Number Corporation was a retail mattress company that assembled and sold adjustable “smart” beds directly to customers. The debtors filed petitions for relief under Chapter 11 on June 12, 2026 in the Bankruptcy Court for the Southern District of New York, and the cases are jointly administered under Case No. 26-11399 (KYP). Davis Polk & Wardwell LLP serves as counsel to the debtors.

The deferred compensation program at issue predates the filing by more than a decade. Sleep Number sponsored the Sleep Number Executive Deferral Plan to provide deferred compensation to a select group of management or highly compensated employees. The Plan was designed as an unfunded arrangement that complies with section 409A of the Internal Revenue Code and qualifies for the exemptions in sections 201, 301, and 401 of ERISA. On September 3, 2013, the company entered into a Non-Qualified Deferred Compensation Trust Agreement for Select Comfort with Charles Schwab Bank as trustee, and the deferred compensation was held in the resulting Executive Investment Plan Trust.

The Memorandum Decision does not catalog the operational or macroeconomic pressures that led Sleep Number to file. What it does describe is the shape of the case, and that shape explains why the trust funds mattered. The debtors filed with the goal of selling the company as a going concern on an expedited schedule, and the docket reflects that pace. Bid procedures were approved on July 2, 2026, twenty days after the petition date, and the court approved the sale on July 21, 2026, less than six weeks after the filing.

A case run at that speed puts the composition of the estates in front of the court early. The board provided written notice of insolvency to the trustee ten days into the case, the debtors moved for turnover of the trust funds on July 5, 2026, and the motion states that the trustee and the Official Committee of Unsecured Creditors support the relief. One objection was filed, by a Plan participant.

The outcome here follows from the structure rather than from anything particular to this case. A top hat plan paired with a rabbi trust exchanges protection from the employer’s creditors for tax deferral, and that exchange is fixed when the employee elects to participate.

A top hat plan is defined in ERISA as a plan that is unfunded and maintained by an employer primarily to provide deferred compensation for a select group of management or highly compensated employees, 29 U.S.C. § 1051(2). Top hat plans remain subject to ERISA’s administrative and enforcement provisions but are exempt from its vesting, participation, fiduciary responsibility, and funding requirements. The rationale, as the decision notes, is that management and highly compensated employees have sufficient bargaining power to negotiate favorable deferred compensation plans and are capable of taking the attendant risks into account. The tax treatment follows the same premise. The participant is not taxed until actual receipt because the participant may never receive the money if the company becomes insolvent.

Unfunded status is the load-bearing element. As the Third Circuit put it in Accardi v. IT Litigation Trust (In re IT Group, Inc.), 448 F.3d 661, 665 (3d Cir. 2006), the assets used to pay the deferred compensation are the general assets of the employer and are subject to the claims of the employer’s creditors. A rabbi trust is the workaround that lets an employer segregate cash without losing that status. The assets go into a trust, they can be used only to pay deferred compensation, and a change of control cannot claw them back. The condition is that the trust funds remain subject to the claims of the employer’s creditors in the event of insolvency or bankruptcy.

That last line is the whole case. The security a rabbi trust provides is security against the employer changing its mind, not security against the employer running out of money.

Two features of the Sleep Number documents pointed in opposite directions, and the court had to decide which controlled. The trust was irrevocable by Sleep Number, and the funds were segregated from other company assets. Those are the features that make a rabbi trust feel like protection. Everything else in the documents pointed the other way.

A bankruptcy filing was an event of insolvency under the Trust Agreement, so the entire insolvency architecture switched on automatically at the petition date. The board’s written notice of insolvency ten days later completed the sequence, and section 3(a) gave the trustee a clean path to comply with a turnover direction without exposure. That drafting is why the trustee supported the motion rather than resisting it.

The sole objection came from a former Sleep Number employee and Plan participant appearing pro se, owed roughly $107,000 in deferred compensation. The objection did not challenge the trust documents on their terms. It raised fairness and disclosure.

He could not reach his own deferred compensation before the filing because he had elected a five year post-employment distribution schedule. He stated that he would not have participated in the Executive Deferral Plan had he fully understood that the compensation would be inaccessible for years and exposed to the claims of Sleep Number’s creditors. He argued that transferring the trust funds to the estates for the benefit of creditors is “fundamentally inequitable,” and he asked the court either to deny the motion or to impose additional protections preserving participants’ contractual and legal rights.

The relative scale is worth noting. The trust funds represent approximately 2.5 percent of the approved sale price, and the objector’s claim represents approximately six tenths of one percent of the trust funds.

The court reached the result in three moves, each resting on settled authority.

Start with the breadth of the estate

The filing of a petition creates an estate comprised of all legal or equitable interests of the debtor in property, wherever located and by whomever held, under 11 U.S.C. § 541(a)(1). The scope of property under that section is broad, as the Supreme Court held in United States v. Whiting Pools, Inc., 462 U.S. 198, 204-05 (1983). Custody by a third party trustee does not remove property from the estate if the debtor holds the interest.

Establish that top hat assets belong to the employer

Because top hat plans are unfunded, distributions on account of those plans are paid using the employer’s general assets and are subject to claims of the employer’s creditors, per IT Group, 448 F.3d at 665. The court paired that with Lehman Brothers Inc. Deferred Compensation Defendants Steering Committee v. Giddens (In re Lehman Brothers Inc.), 617 B.R. 231, 240 (Bankr. S.D.N.Y. 2020), aff’d, 2021 WL 4127075 (2d Cir. Sept. 10, 2021), which states that because top hat plans are exempt from the funding requirements of title I of ERISA, the assets of a top hat plan are part of the general assets of the employer.

Confirm that the rabbi trust changed nothing

Creating the Deferred Compensation Trust did not alter the fact that the funds remaining in it belonged to Sleep Number. The court quoted its own prior explanation in In re WorldCom, Inc., 364 B.R. 538, 543 (Bankr. S.D.N.Y. 2007): the Internal Revenue Code requires that all trust assets be property of the employer and therefore subject to the claims of the employer’s creditors, and it is only the act of distribution that conveys assets held in a grantor trust from the grantor to the grantee. Sleep Number’s trust is a grantor trust of which Sleep Number is the grantor, so participants held only a limited interest until distribution, and distribution never occurred.

Notice what the analysis did not require. The decision reaches its result without any avoidance theory and without questioning the validity of the trust. The feature that made the deferral work for tax purposes, employer ownership of the trust assets, is the same feature that placed those assets in the estate.

The court did not dismiss the fairness argument. It agreed with the premise and rejected the remedy, which is the more instructive outcome.

The decision states sympathy for the objector and for other Sleep Number employees who expected to receive deferred compensation payments, then places that expectation alongside every other disappointed expectation in the case. Commercial landlords, vendors, and suppliers all expected full payment of amounts owed to them, and all of them will likely receive a fraction of what they are owed from the estates. Against that backdrop, the court held that it is unable to give preferential treatment to one set of unsecured creditors over another based solely on equitable principles.

The same reasoning answers the alternative request for additional protections for Plan participants. Protections that improve one group of general unsecured creditors relative to the rest operate as priority, and priority is a function of the Bankruptcy Code rather than of the relative sympathy a claim attracts.

The decision is careful to mark its own limits, and the limits are the only actionable part of it for participants.

The ruling has no effect on the objector’s right, or the right of any other Plan participant, to file a general unsecured claim in the cases. The deadline is September 10, 2026 under the order establishing deadlines and procedures for filing proofs of claim, entered at ECF Doc. # 473. The court noted that the case specific website maintained by the claims agent is informative as to the filing of proofs of claim, and directed the clerk’s office to mail a copy of the Memorandum Decision to the objector.

Recovery on those claims will depend on the ultimate distribution in the cases, which the decision does not address. What the decision fixes is the participants’ position in the priority scheme.

Nothing in this decision breaks new doctrinal ground. Its value is in how cleanly it lays out a sequence that recurs in every case where a top hat plan meets an insolvent employer, and in what the sequence tells you about where to spend your attention.

For debtors’ counsel, the turnover motion is a document exercise before it is a litigation exercise. The provisions that carried this motion were drafted in 2013: no ownership interest, parity with general unsecured creditors, availability on insolvency, a payment stop, and an express indemnity for the trustee delivering property at a court’s direction. Read the trust agreement first. If those provisions are present, the motion is largely written, and the trustee is likely to support it rather than oppose it.

For creditors’ committees, a rabbi trust is worth identifying early. The funds sit with a third party institution rather than in the debtors’ operating accounts, and recovering them here required an affirmative motion rather than a claim objection.

For participants and the counsel who advise them, the exposure is fixed at election rather than at insolvency. The objector elected a five year post-employment distribution schedule, which is why the funds were still in the trust at the petition date, and his objection states that he would not have participated had he fully understood that the compensation would be inaccessible for years and subject to creditors’ claims. That is a disclosure and advice question, and the decision indicates it is not one a bankruptcy court can resolve through the priority scheme.

On July 28, 2026, Judge Kyu Young Paek overruled the United States Trustee’s objection to Sleep Number’s Non-Insider Retention Plan and authorized $1.825 million in retention awards to 38 employees. The court overruled the objection on the record following oral argument and issued the written memorandum the same day. The decision is designated for publication.

The ruling came three days before the scheduled closing of a going-concern sale that produced a winning bid of $701,800,000. The prepetition secured lenders are owed approximately $672.5 million. The 38 employees promised awards for staying through that sale process are the ones the United States Trustee argued should not receive them.

Two things remain open. The sale was scheduled to close on or around July 31, 2026, subject to ongoing negotiations with landlords, vendors, and other contract counterparties. And the sale order carved out a separate dispute between the United States Trustee and the debtors over whether the buyer’s satisfaction of severance obligations owed to officers and directors is proper. That matter was set for hearing on August 3, 2026.

Sleep Number Corporation is a retail mattress company that assembles and sells adjustable smart beds directly to customers. It employs just under 3,000 people. The debtors filed Chapter 11 petitions in the Southern District of New York on June 12, 2026, and the cases are jointly administered before Judge Paek. Davis Polk & Wardwell LLP serves as debtors’ counsel.

The corporate hierarchy is central to the dispute. Authority runs through four levels, and the decision maps them precisely.

Every member of the Executive Leadership Team other than the CEO carried a second title of executive vice president or senior vice president. That is the structural fact that gives the case its shape. At Sleep Number, the vice president label sits at the very top of the company and also several rungs below it, which means the word by itself carries no information about where a given employee falls.

This is a sale case, and it was a sale case before it was a bankruptcy case. The memorandum decision does not catalog the operational causes of the filing. What it establishes instead is the posture: the debtors had been running a months-long marketing process to sell the company as a going concern, and they filed Chapter 11 to effectuate that sale.

The prepetition secured lenders, owed approximately $672.5 million, supported the process and agreed to fund up to $65 million in additional financing in bankruptcy. That backing set the schedule. Bidding procedures and a stalking horse asset purchase agreement with SNBR Inc. were approved on July 2, 2026, less than three weeks after the petition date. The stalking horse bid guaranteed the estates a floor of $415 million.

The auction on July 13 ran multiple rounds. SNBR emerged as the winning bidder at $701,800,000, exceeding the guaranteed floor by $286.8 million.

The decision does not describe the composition of the winning bid or how proceeds will be allocated. The figures below are benchmarks within the sale process, not a statement of creditor recoveries.

The Official Committee of Unsecured Creditors was appointed June 23, 2026. In its joinder supporting the retention plan, the Committee stated that completion of the sale to SNBR would be a resounding success to all constituents in the cases, including general unsecured creditors. The Committee’s position matters to the retention analysis because the fiduciary for the creditors whose recovery the awards would reduce supported the awards.

Senior leadership formulated the plan in May 2026, before the petition date, with the assistance of compensation advisors and attorneys. Award letters went out on or around May 26, 2026, roughly two and a half weeks before the filing. The awards vest on continued active employment through December 31, 2026, and accelerate on a change in control, which meant the participants stood to be paid on completion of the sale rather than at year end.

The 38 participants break into three groups by title, and the composition is what the United States Trustee attacked.

Nine participants have vice president in their titles. None of the nine is an officer for purposes of Section 16 of the Securities Exchange Act of 1934, and all Sleep Number vice presidents report to senior or executive vice presidents. Thirteen have director or senior director in their titles. None sits on the board, and all thirteen are junior in seniority to the nine vice presidents. The remaining sixteen provide various management and support functions. None of the 38 sits on the board, the Executive Leadership Team, or the Management Committee. None was appointed by the board. None is involved in setting corporate policy.

Authorization for the retention payments was included in the debtors’ first-day employee motion, which sought the ordinary relief of paying prepetition wages and maintaining benefits programs. The United States Trustee objected on July 14, 2026, and made two arguments in the alternative.

The procedural sequence is worth noting on its own. The debtors filed a reply brief and a supporting declaration on July 19. The court took live testimony on July 20 and allowed full cross-examination. Both parties filed supplemental submissions on July 27. Oral argument followed on July 28. A dispute over $1.825 million in a case with a $701.8 million sale received an evidentiary hearing, supplemental briefing, oral argument, and a published opinion.

Everything turns on this threshold. If the participants are insiders, the retention payments run into 11 U.S.C. § 503(c)(1), which conditions payment on a bona fide competing job offer at equal or greater compensation, a finding that the services are essential to the survival of the business, and a hard cap tied to a multiple of what nonmanagement employees received. A debtor’s ability to pay a retention bonus to an insider is severely restricted, as the court put it, quoting Global Home Products.

Section 101(31)(B) defines insider for a corporate debtor to include directors, officers, and persons in control. Neither director nor officer is defined in the Bankruptcy Code, and the case law fills the gap. A director is understood as an individual who sits on the board. An officer is a person elected or appointed by the board to manage daily operations. Title alone is insufficient to establish either.

The court reached the same answer under both tests. Under the objective criterion from LSC Communications, the participants are not insiders because the board did not appoint them. Under the functional approach, they are not insiders because they lack the authority to dictate corporate policy. The decision rests on both grounds rather than either alone.

The United States Trustee’s most interesting theory was that at least some participants are insiders because they report directly to insiders and perform work for them. The CFO testified that some participants provide direct support to Sleep Number officers, so the factual premise was conceded.

The court rejected the inference. Directors and officers do not work in isolation when making important decisions for a corporation, and it should come as no surprise that officers receive contribution from corporate subordinates.

The distinction the court drew is between authority and proximity to authority. Section 101(31)(B) reaches directors, officers, and persons in control. Supporting an insider does not place an employee in any of those three categories.

Clearing the insider hurdle does not end the inquiry. Section 503(c)(3) bars transfers outside the ordinary course of business that are not justified by the facts and circumstances of the case. Courts in the Southern District of New York treat that test as no different than the business judgment standard under section 363(b), following Endo International, Velo Holdings, and Borders Group. The operative framework is the six-factor test from Dana Corp. The court found the plan satisfies that test. Its written analysis addresses the first four factors expressly and treats the remaining two through the same record evidence regarding how the plan was formulated.

Factor one had direct evidentiary support. During testimony on July 20, the CFO disclosed that one of the participants had resigned that same day.

The United States Trustee’s last argument was practical rather than doctrinal. The sale would close within days. Most participants would likely be offered jobs with the buyer. Retention money paid at that point buys nothing, because there is nothing left to retain them for.

The court measured the plan against the moment it was adopted, not the moment the objection was heard. Success was far from certain in May 2026 when senior management formulated the plan. The purpose was to stabilize operations, prevent value erosion, and ease the transition to a purchaser, and all three objectives were live risks at the time the award letters went out. The court declined to treat the outcome of the sale process as evidence that the incentive had been unnecessary.

The court closed with an equitable point. Having received the benefit of the participants’ contribution to what the court called a remarkably successful sale process, it would be wholly inequitable to renege on the incentive offered to them for providing it.

Forty-six days separate the petition date from the memorandum decision. The retention dispute was fully briefed, tried, argued, and decided while the sale process ran to completion.

The doctrinal holdings here are not new. Titles do not create insider status, and the business judgment standard governs section 503(c)(3). What the decision supplies is a clean, published application of both propositions to a sale case, with a record detailed enough to serve as a template.

Build the record on structure, not adjectives

The declaration did not assert that the participants were unimportant. It asserted the opposite, that they were critical to the business, and then separately established that none was appointed by the board, none sat on any of the three governance bodies, none set corporate policy, and none was a Section 16 officer. Criticality supports the section 503(c)(3) case. Absence of appointment and authority defeats the insider case. Those are different showings and the declaration made both.

Explain your title conventions before someone else does

The reason the vice president and director titles did not sink the plan is that the record explained what those words mean at this company: that all vice presidents report to senior or executive vice presidents, that the directors are junior to the vice presidents, and that every executive who is genuinely senior carries an executive vice president or senior vice president title. The court relied on that testimony in concluding that the titles signified increased responsibility or supervisory role rather than insider status.

LSC Communications cuts both ways, and you should say so

The district court’s objective criterion is usually invoked against debtors, because board appointment ends the analysis for anyone who has it. Sleep Number ran it in the other direction. If board appointment is dispositive of insider status, the absence of board appointment resolves the question the other way under the same framework, and the functional analysis only comes into play as a second line of defense. Resolving the question under both frameworks, as the court did here, produces a result that does not depend on which line of authority controls.

Get an economic stakeholder to say it

The committee’s joinder did real work in the section 503(c)(3) analysis. The court noted that no party who could possibly be pecuniarily affected by the loss of $1.825 million from the estates had objected, and that the fiduciary for unsecured creditors had affirmatively supported the plan and opined that the payments were within the range expected under similar programs. The court treated the absence of objection from any pecuniarily affected party, together with the Committee’s affirmative support, as material to the cost analysis.

Adopt the plan early and be able to prove when

The timing argument failed because the plan was formulated in May, before the petition and before the outcome was knowable. The prepetition award letters allowed the court to measure business judgment against the uncertainty that existed when the plan was adopted rather than against the result it produced.

The retention question is resolved at the bankruptcy court level. The awards are payable on completion of the sale, and the sale was scheduled to close on or around July 31, 2026. The court noted that the actual payout will be less than $1.825 million because of the July 20 resignation.

The related fight is not resolved. The sale order carved out a dispute between the United States Trustee and the debtors over whether the buyer’s satisfaction of severance obligations owed to officers and directors is proper. That hearing was set for August 3, 2026. The decision addressed in this report concerns payments to employees the court found are not insiders. The carved-out dispute concerns severance obligations owed to officers and directors, and the memorandum decision does not reach it.

Alkegen filed prepackaged chapter 11 petitions in the Northern District of Texas on July 26, 2026, and it filed them with the deal already done. Solicitation launched six days before the petitions, on July 20. The restructuring support agreement carries holders of 99 percent of First Lien Claims, 80 percent of Second Lien Notes Claims, 95 percent of Preferred A Stock, and 99 percent of Senior Common Stock. The voting deadline is August 17, 2026, and the debtors are targeting entry of a confirmation order within 45 days of the petition date.

The transaction eliminates approximately $3.1 billion of funded debt obligations. A company that entered these cases carrying $3.325 billion of funded debt principal, and roughly $3.5 billion including accrued interest and make-whole amounts, would emerge with $400 million of term debt, approximately $200 million of liquidity, and the ability to put up to $150 million of new revolver capacity in place.

Trade creditors are unimpaired and are being paid in the ordinary course, which the declaration identifies as a condition the Ad Hoc Group required in exchange for its support of the RSA and the DIP Facility. General Unsecured Claims are reinstated or paid in full. Existing Alkegen Holdco Interests, defined as all outstanding Preferred A Stock, Preferred A-1 Stock, and Senior Common Stock, are canceled without distribution. The Sponsor holds the vast majority of the Senior Common Stock and Preferred A Stock, and it signed the RSA. The Preferred A-1 Stock is held entirely by third-party investors, and the declaration does not state their level of support.

The Dates That Matter

The RSA milestones compress the case into a window most operating chapter 11 filings would use just to get through a final DIP hearing. If any milestone slips, the RSA outside date of December 31, 2026 sits behind everything.

The declaration gives its own reasons for the compressed schedule: minimizing disruption to the business and limiting the accrual of administrative expenses. It separately identifies the September 30 PIK expiration as a source of increased pressure on liquidity. The two sit nine weeks apart.

Alkegen makes the materials that sit between heat and everything else. Its products are high-performance fibers engineered into blankets, felts, papers, boards, and mats used in blast furnaces, petrochemical refining, glass production, catalytic converters, and electric vehicle battery packs.

The company is the product of two long corporate histories. Unifrax was founded in 1942 by the scientist who invented ceramic fiber, commercialized a decade later as Fiberfrax. Lydall traces to 1869, when two families began manufacturing knitting needles in Manchester, Connecticut, and became a specialty filtration and advanced materials business listed on the New York Stock Exchange. Investment vehicles affiliated with Clearlake Capital Group acquired Unifrax in December 2018. Unifrax acquired Lydall in September 2021, and the combined operations were consolidated under the Alkegen banner.

Revenue concentrates in the industrial side of the portfolio. Industrial Solutions carried nearly two-thirds of 2025 revenue on insulation materials, high-efficiency filtration, and micro fine glass fibers. Mobility Solutions sells emission control mats used by virtually every automaker for catalytic converter support, along with battery fire protection for electric vehicles and stationary storage. Industrial Filtration makes felt-based media for industrial waste gases. SiFAB, a structured silicon anode material launched as a research project in 2017, has not yet reached commercialization.

Geographically, North America accounted for roughly 55 percent of 2025 sales, Europe 30 percent, and Asia 15 percent. The Asian exposure runs through a separate and consequential asset. Since 2014 Alkegen has held a stake in Luyang Energy-Savings Materials Co. Ltd., a Chinese producer of ceramic, soluble, and alumina fibers. In June 2022 a debtor subsidiary took a controlling interest of approximately 52.43 percent, later increased to 52.66 percent through share cancellation. Luyang is not a debtor, and its performance since 2022 sits at the center of the distress narrative.

The declaration attributes the filing to five drivers, and they compound rather than sit side by side. Start with rates. Elevated interest rates have held industrial capacity utilization below its long-run average since the pandemic, and Alkegen sells into steel, petrochemical, automotive, and construction end markets that move with that utilization. High rates also slowed the electric vehicle transition, and electric vehicles now represent 5.3 to 6 percent of new-vehicle sales, down from a peak of 10.6 percent in 2025.

Then add Chinese overcapacity. Persistent oversupply in Chinese manufacturing produced aggressive domestic price competition with spillover effects for producers everywhere else, costing Alkegen market share and compressing margins already pressured by inflation. The controlling stake in Luyang converted that macro exposure into a specific balance sheet problem.

The remaining three drivers are company-specific. Several growth initiatives that underpinned the 2024 refinancing either failed to reach commercialization or ramped more slowly than planned, which matters because those initiatives were part of the case creditors underwrote in 2024. Capital allocation compounded the problem: deferred plant maintenance created operating difficulties across facilities, a complex organizational structure reduced efficiency, and the leverage itself pushed management toward high-impact, hard-to-execute projects while the core business went under-invested. Inflation hit the supply chain on top of all of it.

Management responded on the operating side. A new chief executive officer and a chief transformation officer were appointed in October 2025, with Alvarez & Marsal supporting both roles. Project Horizon began in late 2025. In March 2026 the company collapsed nine business units into the two primary groups it reports today, streamlining hierarchy, centralizing operations management, and driving headcount reductions worth approximately $9 million of annual savings. The full slate of performance improvement initiatives is forecast to generate approximately $40 million of Adjusted EBITDA improvement by 2030.

Forty million dollars of run-rate EBITDA improvement by 2030 is real work. It is also not a solution to $320 million of annual debt service. The declaration says as much: the cost measures have generated and will continue to generate meaningful savings, and they are insufficient to support the existing capital structure.

Six funded debt instruments, five of them secured across three lien tiers, all of them dated or amended on the same day in September 2024. The uniformity of the maturity profile is not a coincidence. It is the signature of a comprehensive liability management transaction.

Note the PIK toggles. The First Lien Term Loans, First Lien Notes, and Second Lien Notes each allowed the company to elect partial payment in kind, and each of those elections expires on September 30, 2026. On that date, interest across those three instruments must be paid entirely in cash. The incremental annual cash burden is approximately $110 million, layered onto forecast 2026 debt service of approximately $320 million, itself up from $297 million in 2025.

The equity above that stack is closely held. Approximately 450,000 shares of Preferred A-1 Stock sit with third-party investors, while the vast majority of the approximately 96,000 shares of Senior Common Stock and 803,000 shares of Preferred A Stock are held by sponsor-affiliated investment vehicles. Roughly 300 shares of Class A Common Stock are held by family members of a former employee. None of it is exchange-listed.

Every fact in the capital structure table traces back to a single transaction. In 2023, facing a 2025 maturity on its then-existing first lien facility, Alkegen engaged Kirkland & Ellis and Centerview Partners. A marketing process that began in February 2024 and included both existing creditors and third-party financing sources closed on September 30, 2024 as a three-part transaction.

The revolver was uptiered to a superpriority position in exchange for a sixteen-month maturity extension. The existing first lien term loan was refinanced in cash through the new Senior Facilities. And holders of a majority of the existing secured and unsecured notes exchanged into the newly issued Second Lien Notes, consenting along the way to strip substantially all affirmative and negative covenants, eliminate events of default, release guarantees, and reprice the lien priority of the Third Lien Notes from first priority to third.

By the standard metrics of a liability management exercise, that is a well-executed deal. It cleared the near-term maturity wall, captured discount, brought in new money, and added a two-year PIK option that reduced near-term cash interest. It was approved by a special committee of the boards comprising a single disinterested director appointed on September 10, 2024, who resigned following the closing.

It also did not deleverage the company. That is the sentence the declaration returns to, and it is the sentence that explains the 2026 filing. The 2024 refinancing assumed a recovery in petrochemical, steel, aluminum, automotive, and general industrial demand beginning in 2025. That recovery did not arrive. The growth initiatives underwritten in the deal did not commercialize on schedule. And the PIK option that made the arithmetic work in 2025 and 2026 was always going to expire in September 2026 and hand back roughly $110 million of annual cash interest.

The waivers tell you when the bridge started failing. On May 18, 2026, first lien Required Lenders and Required Holders granted a limited waiver of the requirement to deliver an unqualified audit opinion and financial statements for fiscal year 2025 and the first quarter of 2026, along with any resulting default. The same day, certain Second Lien Noteholders signed a forbearance covering the same delivery failures. On June 30, both were extended to July 30, 2026. The petitions were filed on July 26, four days before that runway ended.

The most consequential thing the 2024 refinancing did for this case has nothing to do with pricing or maturities. It has to do with the two intercreditor agreements executed on September 30, 2024, which together shaped the DIP and narrowed the objections available to junior creditors.

The Senior Intercreditor Agreement

The Senior Intercreditor Agreement governs relative priority among the RCF Lenders, the First Lien Term Loan Lenders, and the First Lien Noteholders. The remedies waterfall runs first to non-principal revolver obligations, second to revolver principal, third to the First Lien Term Loans and First Lien Notes pro rata, and fourth into the Junior Intercreditor Agreement. Embedded in it is a provision that governs precisely this scenario: if any DIP financing is secured by liens pari passu with or senior to the liens securing the RCF Obligations, the RCF must either be rolled up into the DIP with senior priority or repaid in full in cash upon interim funding.

Look at the use of proceeds for the DIP Facility. First on the list is paying off the First Lien Revolving Loan Claims in full. That is not a business judgment the debtors exercised at the last minute. It is a contractual output of a document signed 22 months before the petition date.

The Junior Intercreditor Agreement

The Junior Intercreditor Agreement subordinates the Second Lien Notes to the Senior Facilities and the Third Lien Notes to the Second Lien Notes. It also contains the covenant that matters most here: if the Senior Secured Parties consent to, or do not object to, DIP financing, the Second Lien Noteholders and Third Lien Noteholders agree not to object to that financing and to subordinate their liens on the same basis.

Combine that with the priming structure and you get the defining feature of this case. Approximately $1.07 billion of Second Lien, Third Lien, and Unsecured Notes claims sits behind a first lien tranche taking substantially all of the reorganized equity, and the holders of that junior debt contractually gave up their ability to fight the financing that gets the case there.

This is the practical lesson for anyone underwriting or documenting a liability management transaction. The pricing grid and the maturity schedule get the attention in the term sheet. The intercreditor provisions govern what happens when the trade fails, and they do it without further negotiation.

The debtors entered these cases with approximately $35 million of unrestricted cash, which is not enough to run a business with 50 plants in 23 countries through even a 45-day case. The $630 million DIP Facility solves for that and for the exit at the same time.

There is a participation mechanic worth flagging. Any party that wants to become a DIP Lender must sign the RSA and irrevocably commit to subscribe for its pro rata share of the Equity Rights Offering. The DIP and the equity are a single package. You do not get to lend into the case without underwriting the reorganized equity, and no assignment of a DIP commitment relieves a lender of the rights offering obligation unless the transferee expressly assumes it.

The exit is sized to match. A $400 million senior secured first lien term facility funds on the effective date, comprising $85 million distributed pro rata to holders of Allowed First Lien Claims and $315 million refinancing the new-money DIP on a cashless, dollar-for-dollar basis. Five-year term, one percent annual amortization, no financial covenants, no junior lien tranche. The reorganized company may also seek a new revolving facility of up to $150 million.

The plan runs nine classes, and only two of them vote. Everything below the first lien is either unimpaired and presumed to accept, or wiped out and deemed to reject.

The Equity Stack

Class 3 receives 100 percent of the New Equity Interests, and then a series of dilution mechanics carve that number down. The Equity Rights Offering allows holders of Allowed First Lien Claims to purchase their pro rata share of 59 percent of the New Equity Interests for up to $335 million, with the final rights offering amount set equal to the outstanding principal and accrued interest on the Roll-Up DIP Claims as of the effective date. Backstop Parties receive an Equity Backstop Premium worth 3 percent of the New Equity Interests. A management incentive plan takes up to 10 percent on a fully diluted basis.

That third gauge is the one to sit with. Class 4 combines First Lien Deficiency Claims, Second Lien Notes Claims, Third Lien Notes Claims, and Unsecured Notes Claims, which means roughly $1.07 billion of junior funded debt principal before any deficiency claim is added. Its recovery is 1.0 percent of the New Equity Interests plus five-year warrants on 5 percent of the equity, struck at an implied total equity value of $2.046 billion, exercisable only on customary liquidity events, with customary anti-dilution protection and no Black-Scholes protection.

Price the warrants against the deal itself. The Equity Rights Offering asks holders of Allowed First Lien Claims to pay up to $335 million for 59 percent of the New Equity Interests, which implies a total equity value of roughly $568 million on those terms. The Class 4 warrants do not come into the money until total equity value reaches $2.046 billion. One caveat on that arithmetic: the final Rights Offering Amount is set by reference to the outstanding Roll-Up DIP Claims rather than to an independent valuation, and the declaration does not include a valuation analysis. The disclosure statement is where that question gets answered.

One timing detail deserves attention. The RSA was executed on July 19, 2026. An amendment dated July 24, five days later and two days before the petitions, added the Unsecured Funded Debt Equity Interests, the 1.0 percent equity slice, to Class 4 treatment. Under the original term sheet, Class 4 received warrants only. Class 4 is one of the two voting classes.

The governance record in this case was built deliberately, and it was built before the negotiations concluded rather than after.

On March 10, 2026, two experienced disinterested directors were appointed to the boards of Ulysses Parent and ASP Unifrax, and a 2026 Special Committee comprising those directors was established the same day. The committee received exclusive authority over Conflicts Matters, defined as any matter where a conflict exists or is reasonably likely to exist between the company and its Related Parties, plus authority to review any strategic transaction. On April 16, 2026, at the sole direction of the disinterested directors, Katten Muchin Rosenman was retained as independent counsel to assist with an Independent Investigation into the merits and potential value of any claims the company might hold relating to Conflicts Matters.

That investigation began in April 2026 and, per the declaration, remains ongoing as of the petition date. The committee anticipates concluding it during these chapter 11 cases. The committee ultimately recommended that the company enter into the RSA, incur the DIP financing, and file.

The release construct is opt-out. Releasing Parties include all holders of claims that vote to accept the plan, all holders deemed to accept who do not affirmatively check the opt-out box on the applicable notice of non-voting status, all holders who abstain and do not opt out on the ballot, and all holders deemed to reject who do not opt out. Released Parties include the debtors, the reorganized debtors, agents and trustees, the DIP parties, the RCF Lenders, the Exit Facility parties, the Consenting Creditors, and the Sponsor, in each case unless that party opts out or timely objects, whether formally on the docket or informally in writing. Exculpated Parties are limited to the debtors, the reorganized debtors, and their directors and officers.

One limit on what the record supports. The declaration describes the Independent Investigation only by reference to Conflicts Matters, defined by the relationship between the company and its Related Parties. It does not identify which transactions or claims are under review, and it does not connect the investigation to the 2024 refinancing. What the filing establishes is the scope of the delegation and the fact that the work is unfinished.

The Reorganized Board

Post-emergence governance is set out in the Governance Term Sheet. New Alkegen would be a private entity with a single class of common equity and a seven-member board, with the jurisdiction and form of entity left bracketed in the term sheet pending tax and regulatory input: one manager designated by each of three Consenting First Lien Creditors that hold at least 15 percent of the outstanding equity, three independent managers designated by holders of a majority of the equity, and the chief executive officer. Each designating equityholder is also entitled to a non-voting observer. Control of the reorganized company sits with the same creditor group that funded the 2024 refinancing.

The debtors filed thirteen first day motions. One of the more consequential asks for authority to pay all trade claims in the ordinary course rather than to run a limited critical vendor program.

The rationale is geographic. Approximately 40 percent of the debtors’ vendor base consists of foreign trade creditors who may disregard the automatic stay and pursue remedies in non-U.S. jurisdictions, and the company sources highly specialized inputs that are difficult or impossible to replace on a useful timeline. The declaration is direct about the second reason: leaving trade claims and other non-funded debt claims unaffected was required by the Ad Hoc Group as a condition of its support for the RSA and the DIP Facility.

That is worth understanding as a value calculation rather than a courtesy. The creditors receiving substantially all of the reorganized equity are the ones insisting that trade be paid in full, because they are buying a going concern with 50 plants across 23 countries and a supply chain that does not survive a two-week payment freeze.

The same logic drives a companion request to restate and enforce the worldwide automatic stay, the anti-discrimination provisions, and the ipso facto protections. With entities incorporated in 24 countries and foreign governmental units able to condition licenses and permits, a domestic order confirming the extraterritorial reach of the stay is a practical necessity rather than a formality.

The section 163(j) carryforward figure is the one to note. Approximately $1 billion of disallowed interest carryforwards is a direct artifact of the capital structure that produced this case, and preserving it is a meaningful component of the reorganized company’s value.

If the plan is confirmed as proposed, the outcomes sort cleanly by where a stakeholder sat in the September 2024 documents.

What to Watch

Three things will determine whether this case matches its schedule. The first is the Independent Investigation. It is open, it is being conducted by independent counsel at the direction of two disinterested directors, and the plan asks the court to approve releases covering the Sponsor. How and when that investigation resolves is the variable the milestones cannot control.

The second is Class 4. Approximately $1.07 billion of junior funded debt principal is voting on a plan that gives it 1.0 percent of the equity and warrants struck well above the value implied by the rights offering. Second Lien support runs at 80 percent, and the Junior Intercreditor Agreement forecloses a DIP objection, but it does not foreclose a confirmation objection on valuation or best interests grounds.

The third is regulatory. The effective date milestone contains an automatic 60-day extension available solely for outstanding regulatory approvals. The debtors have entities incorporated in 24 countries and hold a controlling stake in a Chinese listed company, and the declaration does not identify which approvals are outstanding or when they are expected.

None of this is final. The voting deadline has not passed, the disclosure statement has not been approved, objection deadlines remain open, and the plan may be amended. What the first day record establishes is the shape of the deal and the assumptions behind it, which is precisely what makes it worth reading closely at the front of a case rather than at the end.

FreshRealm, Inc. and four affiliated debtors filed a disclosure statement in the United States Bankruptcy Court for the District of New Jersey on July 27, 2026, seeking approval to solicit votes on a liquidating Chapter 11 plan. The operating business has been sold or wound down. What the plan governs is what remains: the distribution of settlement proceeds, the wind-down of five entities, and the pursuit of insurance claims on which no insurer has yet paid.

Two features of the filing deserve attention before anything else. The Official Committee of Unsecured Creditors does not support the plan. And the disclosure statement itself states that the plan “remains subject to further negotiation.” The debtors are soliciting votes on a plan they describe as unfinished, and the statutory fiduciary for the largest impaired class has not signed on.

The disclosure statement was filed on the same calendar day as the general claims bar date. The debtors are asking creditors to evaluate a plan whose principal variable, the size of the general unsecured claims pool, was still being established as the document went to the docket. The liquidation analysis required to test the plan against Section 1129(a)(7) is attached as Exhibit B and marked “to be filed.” No valuation analysis is included, and the debtors say they do not anticipate filing one, relying instead on a completed marketing process as the market’s own answer on value.

The court has scheduled the confirmation hearing for September 24, 2026, on the same day as the hearing to approve the adequacy of the disclosure statement on a final basis. That combined structure compresses the timeline, and it means the objection deadline of September 15, 2026 is the practical pressure point for anyone who wants to be heard on either the disclosure or the plan.

The Dates That Matter

FreshRealm was founded in 2013 and spun off as independent companies in 2021. It built what the disclosure statement describes as a shared services platform for fresh and better-for-you food: rather than each emerging food brand constructing its own single-use manufacturing and fulfillment infrastructure, FreshRealm built the plant and spread the fixed cost across multiple customers and channels. The business ran direct-to-consumer, grocery, performance, and lifestyle and medically focused programs through the same physical footprint.

FreshRealm, Inc. is the main operating entity and the direct sole shareholder of the other debtors other than FreshRealm Holdings, Inc., which is the parent entity. The debtor group is compact: five entities, one operating company, and a single parent. The disclosure statement also refers to non-Debtor affiliates, which it does not describe.

The platform grew by acquisition. In June 2023 the debtors acquired Blue Apron’s production and fulfillment operations, including the Linden leasehold, equipment, transferred contracts, and intellectual property, and signed a ten-year production and fulfillment agreement making them the exclusive supplier of Blue Apron’s meal kits. Blue Apron itself was acquired by Wonder Group, Inc. three months later. In January 2024 the debtors acquired the United States operational assets of Marley Spoon and folded its supply chain into the same network, taking on fulfillment for the bistroMD, Martha & Marley Spoon, and Dinnerly brands.

Beyond Linden, the disclosure statement identifies operating facilities mainly in Lancaster, Texas and Tracy, California. It also references a facility in Montezuma, Georgia and plants in San Clemente, California and Indianapolis, Indiana that were closed at the end of January 2026. On January 9, 2026, the debtors announced a joint venture with UFC for a sports-affiliated meal plan offering nearly 200 meals on a rotating weekly menu. That announcement came in the same month Walmart informed the debtors it would end the customer relationship.

The shared services model that made FreshRealm efficient also made it fragile. Two customers accounted for roughly 90 percent of revenue. Blue Apron sales alone represented approximately 70 percent of the total, and Walmart, a growing account, comprised more than 20 percent. A platform built to spread fixed cost across many customers was in practice supported by two.

Beginning in late March 2025, the debtors experienced five separate withdrawal, voluntary recall, or recall incidents associated with Listeria monocytogenes. The disclosure statement attributes all five to the debtors’ receipt of contaminated material from suppliers. That attribution did not preserve either customer relationship.

The recalls did their damage through liquidity rather than through any single catastrophic loss. Production and fulfillment were disrupted, customers attrited, and cash drained. The debtors responded with a transformation plan built on SG&A reductions, facility consolidation, plant closures, and material optimization. In July 2025 they exercised a remaining option to sell $10 million of Series B preferred shares, funded the following month. In October 2025 they reached a recapitalization agreement with their lenders and raised $110 million in additional capital, conditioned on right-sizing the cost structure to the then-existing revenue base.

The turnaround was still being implemented when Walmart left. That is the sequence that undid the recapitalization. The debtors had borrowed $110 million against a revenue base sized in October 2025, and more than 20 percent of that base was gone by January 2026. By the debtors’ own account the business was materially improved by early 2026 and forecast to reach positive cash flow in the third quarter of that year. It never got there. Through January and February 2026 the debtors met with at least fifteen working capital lenders and multiple parties interested in monetizing the insurance claims. None of those efforts succeeded.

The debtors entered Chapter 11 with approximately $168 million of outstanding secured funded debt across two facilities, both executed within the fourteen months preceding the filing. The disclosure statement identifies no unsecured funded debt. Both facilities date to 2025, and the second lien position, signed in October of that year with the recalls already underway, is the larger of the two.

The first lien facility was signed on March 11, 2025, eight days before the USDA began sampling at Indianapolis. It provided a $75 million commitment consisting of a $45 million initial term loan funded at closing and up to $30 million of delayed draw capacity, with approximately $51 million outstanding at the petition date. The second lien facility followed on October 16, 2025, as part of the recapitalization, at up to $50 million fully drawn by the petition date, and was then upsized on December 4, 2025 by an incremental delayed draw of up to $70 million, of which $60 million was drawn.

The Amended and Restated Intercreditor Agreement dated December 4, 2025 created a collateral silo that shapes the entire distribution question in this case. The second lien lender holds a first priority lien on 2L Priority Collateral, defined as all accounts, rights to payment, receivables, inventory, and the proceeds and products of the foregoing, with the first lien lender taking a second position on that same collateral. On everything else, the priorities run the conventional way.

The defining controversy in this case is a contract fight, and the way it was resolved is the reason there is any distributable value at all.

The production and fulfillment agreement made the debtors the exclusive supplier of Blue Apron’s meal kits for an initial ten-year term beginning in June 2023. Starting in April 2025, Blue Apron asserted that the debtors had breached obligations under that agreement based on food quality and safety failures associated with the recalls, identifying alleged material breaches in a letter dated April 9, 2025. In December 2025 Blue Apron sent a notice of termination and moved to replace the debtors as its exclusive provider.

The debtors’ response led with procedure. They contended that the termination notice failed to comply with the agreement’s notice and cure requirements for the newly alleged breaches. They argued the conduct did not constitute a material breach, that they had cured the previously identified breaches, and that Blue Apron had failed to strictly comply with the notice provisions. The parties then entered a series of tolling agreements to preserve all rights, claims, and defenses, including the validity of the termination notice itself, with the most recent tolling period set to expire on May 4, 2026.

The petition was filed on April 27, 2026, one week before that tolling period lapsed.

The tolling arrangement did not neutralize the commercial damage. The disclosure statement is direct about this: the ongoing dispute negatively affected financial support to and investment in the debtors’ business. A counterparty asserting termination of an agreement representing 70 percent of revenue is a fact that any prospective working capital lender will price, and the debtors’ failure to raise capital from fifteen lenders through January and February 2026 followed accordingly.

What Was Actually at Stake

Both sides held exposure. If the termination notice was invalid, Blue Apron faced a claim on a supply agreement with roughly seven years remaining. If it was valid, the debtors lost their largest customer with no compensation. The parties engaged in settlement discussions while the tolling agreements preserved all rights, claims, and defenses, and the resulting settlement resolved the dispute without adjudicating it.

The settlement did three things at once. It resolved the termination dispute, it transitioned Blue Apron’s fulfillment to a new provider, and it funded the estate. The debtors filed the motion to approve it on the petition date, the court entered the order on June 2, 2026, and the transaction closed on June 4, 2026, thirty-eight days into the case.

The $47 million of cash consideration is not paid in a single tranche. A portion is paid on the effective date and a portion in installments over a subsequent fifteen-month period. The plan accounts for this directly: to the extent DIP claims, first lien claims, or second lien claims are satisfied in whole or in part from the Blue Apron Deferred Payments, those claims are funded by Blue Apron or Wonder Group, Inc. or an affiliate rather than by the estate. Secured creditors are taking installment payment risk on a non-debtor obligor, and the plan says so.

Beyond the cash, the transaction delivered value in forms that do not appear on a distribution waterfall. The debtors received net zero payment terms and an immediate payment of approximately $5.1 million in contractual end of life payments. Blue Apron agreed to address substantial remediation costs at the end of the lease term for the Linden facility, which removes what would otherwise be a significant unliquidated claim against the estate. And Blue Apron waived administrative claims that would have competed with every other administrative creditor for the same limited cash.

Note what the asset purchase agreement conveyed. The inventory and working capital sold to Misfits Market fall within the 2L Priority Collateral. The equipment does not. The transaction that generated the estate’s cash therefore also monetized part of the collateral pool on which the second lien lender holds first priority. The plan distributes to the DIP, first lien, and second lien claims through a single Distributable Waterfall rather than through separate collateral-by-collateral distributions.

The prepetition lenders funded the case. Before the filing, the DIP lenders advanced $3 million in protective advances as bridge financing. The final DIP order entered June 2, 2026 authorized a senior secured, superpriority multiple draw term loan facility of $18 million in new money loans, inclusive of the $3 million prepetition protective advance, plus a roll-up of $38 million of prepetition term loans. Read against the definition elsewhere in the disclosure statement describing a $15 million post-petition new money facility, the arithmetic reconciles: $15 million of genuinely new post-petition money on top of the $3 million already advanced.

The DIP facility carried case milestones designed to prevent a prolonged stay, and it functioned as intended. It funded the Blue Apron and Misfits closing, covered operations and administrative expense during the case, and funds the wind-down under an agreed budget. The debtors describe it as the product of arm’s-length negotiation, and the roll-up converted $38 million of prepetition term loans into superpriority DIP claims.

The Second Sale Process

Running in parallel with the Blue Apron settlement, the debtors marketed everything the settlement did not cover: inventory, accounts receivable, contracts, leases, intellectual property, and other residual assets. Rothschild & Co., engaged February 21, 2026, identified numerous strategic and financial parties as potential bidders. The disclosure statement characterizes the process as extensive and far reaching.

No person or entity submitted a qualifying bid by the June 10, 2026 deadline. The debtors filed a notice of cancellation of auction on June 11, 2026 and pivoted to liquidation sales, de minimis asset procedures, and ordinary course dispositions.

That outcome is doing real work in the plan. Because no bid emerged, the debtors argue the marketing process was itself the best available method of valuing the enterprise, and on that basis they decline to file a valuation analysis, citing orders in In re LBI Media, Inc. and In re Gastar Exploration Inc. for the proposition that Section 1125(b) permits approval of a disclosure statement without a valuation or appraisal. The absence of a qualifying bid is the evidentiary basis on which the debtors ask the court to approve the disclosure statement without a valuation.

The plan splits the estate in two. Wind-Down Debtors, run by a Plan Administrator serving as sole director and officer of each entity, hold the Plan Administration Assets and pay administrative, priority, secured, and lender claims. A Liquidating Trust, run by a Liquidating Trustee, holds the Liquidating Trust Assets for the benefit of holders of allowed general unsecured claims. The two vehicles have separate fiduciary obligations and separate retained causes of action, and the plan requires consultation between them at defined points.

Classes 4, 5, and 6 are the voting classes. Acceptance requires two-thirds in amount and a majority in number of claims actually voted in each class. Classes 9 and 10 are cancelled with no distribution. The debtors reserve the right to seek confirmation under Section 1129(b) over any rejecting impaired class, and Section 1129(a)(10) is satisfied by acceptance from any one of the three voting classes.

Treatment and the Distributable Waterfall

DIP claims, first lien claims, and second lien claims all receive distributions through the Distributable Waterfall. For Classes 4 and 5 the plan caps recovery at 100 percent of the allowed claim. DIP claims carry senior secured superpriority status under the final DIP order and are paid until indefeasibly paid in full, subject at all times to the waterfall. Holders of DIP claims also receive cash sufficient to pay the reasonable and documented fees of the lender professionals, with those payments made directly to the professionals rather than to the DIP holders. General unsecured creditors receive a pro rata share of Liquidating Trust Interests, which the plan expressly provides are not securities and are non-transferable except as required by law.

The treatment table in the disclosure statement describes what each class receives but states no estimated recovery percentage, for the first lien, the second lien, or general unsecured creditors. The identified funding sources are the settlement proceeds, proceeds of sales or liquidations of remaining assets, cash on hand, wind-down proceeds, and Liquidating Trust Assets. Set against approximately $168 million of prepetition funded debt plus $15 million of new post-petition money, the arithmetic that would produce a recovery estimate for any class is not presented.