UK: Federal Court Upholds Make-Whole Premium Payable To Secured Noteholders In Chapter 11 Bankruptcy

Last Updated: 21 December 2016
Article by Clinton Jang and Jeanne Solomon

December 14, 2016 Corporate News Update: Federal Court Upholds Make-Whole Premium Payable to Secured Noteholders in Chapter 11 Bankruptcy, U.S. Securities Filings Start to Reflect Election-Related Risk Factors, and Patent Trial and Appeal Board Terminates Inter Partes Review Proceedings Between Microsoft and Enfish Resulting in Enfish Victory

This week's corporate news roundup includes the holding by a U.S. federal appeals court that secured indenture noteholders were entitled to a make-whole premium notwithstanding the issuer's chapter 11 bankruptcy case, the addition by companies in their securities filings with the SEC of risk factors relating to the outcome of the U.S. Presidential election, and the termination by the PTAB of IPR proceedings as to patent claims between Microsoft Corporation and Enfish LLC, resulting in a non-appealable win for Enfish.


A federal appeals court recently held that first lien and second lien noteholders were entitled to a "make-whole" premium contained in the noteholders' indentures notwithstanding the issuer's Chapter 11 bankruptcy case. In doing so, the court reversed the lower court and reached a different conclusion that the holding in the conclusion in a 2015 decision by the Southern District of New York involving the bankruptcy of Momentive Performance Materials. In the 2015 case, the district court held that acceleration of the notes on bankruptcy was a prepayment, cutting off the right to the make-whole premium provided in the indentures. In the 2016 case, the appeals court found that the make whole premium was styled as a redemption (as opposed to a prepayment) and that New York law permitted redemption after maturity. As a result, it held that the acceleration clause in the first lien and second lien noteholder indentures did not obviate the noteholders' right to the make-whole premium. For more information on the In re Energy Future Holdings Corp. case, see


Public companies have begun adding risk factors relating to the unexpected election of Donald Trump as U.S. President and the Republican party's strong Congressional majority. Risk factor disclosure relates to matters such as the climate of political uncertainty, the concern for the future of clean energy and climate change mitigation initiatives, and concerns about existing and proposed trade agreements such as the North American Free Trade Agreement (NAFTA) or the Trans-Pacific Partnership (TPP). Some of the disclosures go as far as to note that the impact of negative sentiments towards the U.S. in the wake of the recent election could negatively affect non-U.S. customers, non-U.S. employees and prospective employees. Examples of such risk factors' headings include "[t]he results of the 2016 United States presidential and congressional elections may create regulatory uncertainty for the wind energy sector and may materially harm our business, financial condition and results of operations" and "[s]ignificant developments stemming from the recent U.S. presidential election or the U.K.'s referendum on membership in the EU could have a material adverse effect on us." See, for example, the disclosure in filings such as (Impinj) and (TPI Composites).


In a recent decision, a federal court reversed a prior district court ruling that certain software patent claims were ineligible under 35 U.S.C. § 101 as unpatentable subject matter due to the obviousness of such claims. Enfish, LLC had sued Microsoft Corporation in 2012 for patent infringement, following which Microsoft launched an inter partes review (IPR) of two of Enfish's patents in front of the Patent Trial and Appeal Board (PTAB) to review the patentability of Enfish's patent claims under 35 U.S.C. §§ 102 or 103. The PTAB may only reject patent claims in an IPR if such claims either lack novelty or are obvious, and only on the basis of prior art (i.e., existing patents and printed publications). While the PTAB's factual findings are generally given deference on appeal, the PTAB's legal conclusions are not given the same deference, and the PTAB has no power to invalidate patent claims based on indefiniteness under an IPR. In the Enfish IPR, the PTAB terminated proceedings as to certain claims of both patents because it concluded that such patent claims were indefinite. Neither Enfish nor Microsoft appealed the PTAB's termination of the IPR. Because of this, the PTAB's decision to terminate IPR proceedings was seen as non-appealable, and thus, a de facto win for Enfish, as the PTAB terminated the IPR without invalidating Enfish's patent claims. Curiously, the original Enfish court decision had also addressed the indefiniteness of Enfish's patents and held that the claims were not indefinite because Enfish disclosed sufficient structure. For more information, see

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