In re Ultra Petroleum Corp.

The Fifth Circuit was recently tasked with interpreting provisions of the Bankruptcy Code after an oil and gas company filed for bankruptcy prior to becoming solvent again during the proceedings. Ultra Petroleum Corp. first proposed a plan to pay all of the outstanding principal, together with accrued interest incurred prior to the proceedings; Ultra’s creditors sought recovery of the “Make-Whole Amount”, which was the present value of the interest payments Ultra would have made in the future.

Under 11 U.S.C 502(b)(2), creditors are barred from recovering “unmatured interest” from bankrupt debtors. Courts have held that the “economic equivalent of ‘unmatured interest”‘ is also barred. Here, the court considered the Make-Whole Amount to be just that since it was for future interest payments, making it unrecoverable unless there was a relevant exception. Under the solvent-debtor exception, a bankrupt debtor who becomes solvent (i.e. able to pay their debts) should pay their contractual debts regardless of bankruptcy rules. Here, Ultra became “massively solvent” after bankruptcy, so the court held they should pay the Make-Whole Amount despite the bar on “unmatured interest.”

Ultra unsuccessfully argued that the Make-Whole Amount was an unenforceable penalty because it was “grossly disproportionate to the probable loss” since it already had to pay post-petition interest (on the principal and the Make-Whole Amount), meaning their creditors would recover interest twice. The court held that these were separate harms with separate recoveries, making the Make-Whole Amount enforceable.

Recent News

Title Opinions Serve Multiple Purposes

Title Opinions Serve Multiple Purposes written by Kaysha Spoon Oil companies most commonly obtain title

How RR&A Personalizes Title Opinions to Our Clients’ Needs

How RR&A Personalizes Title Opinions to Our Clients’ Needs written by Jennifer Martin Two of

RR&A’s Land and Title Qualifications

RR&A’s Land and Title Qualifications written by Jennifer Martin This April, RR&A celebrated its 5th

Managing Your Land Needs

Managing Your Land Needs Why Using One Law Firm for Title Opinions and All Other

You Don’t Need a Separate Title Firm

You Don’t Need a Separate Title Firm written by Jennifer Martin The purpose of RR&A

Know When to Hold‘em, Know When to Fold‘em

Know When to Hold ‘em, Know When to Fold ‘em written by Matt Reynolds Whether


View All News