Clifford Chance
ConvergeOne: Exclusive Backstop Opportunity is Treatment for a Claim Resulting in Unequal Treatment under Section 1123(A)(4)
September 29, 2025
On September 25, 2025, the United States District Court for the Southern District of Texas (the "District Court") reversed the bankruptcy court’s confirmation of ConvergeOne Holdings, Inc.'s prepackaged plan of reorganization (the "Plan"). The District Court found:
- The exclusive backstopping opportunity offered to certain creditors of a class was treatment for a claim—and not merely compensation for their new financial obligations. The District Court distinguished the Eighth Circuit decision in Peabody, which held that the right of certain creditors to participate in a private placement under a chapter 11 plan was not treatment on account of their prepetition claim.
- The Plan violated the Bankruptcy Code's section 1123(a)(4) "equal treatment" requirement to provide the same treatment for each claim or interest of a particular class by (i) giving certain creditors exclusive investment opportunities that resulted in them receiving higher recoveries than other similarly situated creditors and (ii) failing to market test the exclusive investment opportunities.
- Unless offered to each class member, an exclusive backstop opportunity requires a market test—and merely considering alternative plans was not sufficient to satisfy any such test, especially where the only ability to propose alternatives was after a prepackaged plan had already been filed and effectively completed.
- An exclusive opportunity to backstop an equity rights offering requires consideration – beyond the backstop—for the opportunity itself.
