Clifford Chance

Beyond Dish Network: Further Developments in Designating the Votes of Claims Purchased in Bankruptcy

19 March 2013

The decision of the United States Court of Appeals for Second Circuit in Dish Network Corp. v. DBSD North America, Inc. (In re DBSD North America, Inc.) ("DBSD") put those who trade in distressed debt on notice that courts may scrutinize claims trades in which parties seek to extract value by disrupting or delaying a Chapter 11 reorganization.  Purchasing the debt of a distressed company can yield myriad advantages for the acquirer in the Chapter 11 process; the most significant advantage is the ability to obtain a controlling position in the reorganized debtor.  After DBSD, this very rationale for purchasing claims may also be a basis for a court to "designate" – i.e. not count – the vote of a claim purchaser on a Chapter 11 plan.  A party risks designation when it moves beyond maximizing the recovery on its claim and votes based on a wholly different purpose.  To this end, two recent decisions delivered by the Bankruptcy Court in the Eastern District of North Carolina in the same

Download PDF