As we dive into the complex world of bankruptcy law, I’m thrilled to sit down with Desiree Sainthrope, a legal expert with a deep background in drafting and analyzing trade agreements, and a recognized authority in global compliance. Her extensive knowledge extends to various legal domains, including intellectual property and the impact of emerging technologies like AI. Today, we’re focusing on a pivotal recent ruling in the ConvergeOne Holdings case, where the District Court’s decision has sent ripples through the bankruptcy landscape. Our conversation will explore the intricacies of restructuring agreements, the treatment of minority lenders, the balance of power in bankruptcy proceedings, and the broader implications for future cases.
How did the ConvergeOne Holdings case come to the forefront, and why is the District Court’s ruling on September 25, 2025, such a big deal?
The ConvergeOne Holdings case involves a company providing IT, cloud, and communication solutions that found itself in financial distress, leading to a Chapter 11 bankruptcy filing. Before filing, they worked out a restructuring support agreement with about 81% of their first and second lien holders. The District Court’s ruling on September 25, 2025, in the Southern District of Texas, overturned the bankruptcy court’s confirmation of their Chapter 11 plan. This is significant because it highlights a growing intolerance for plans that sideline minority stakeholders for the benefit of a select few. It’s a wake-up call for how restructuring deals are approached, emphasizing fairness and inclusion in these processes.
Can you break down what the restructuring support agreement, or RSA, was in this context, and what it aimed to achieve?
The RSA in the ConvergeOne case was a pre-negotiated deal between the debtors and a majority of their lenders—specifically around 81% of their first and second lien holders—before they even filed for Chapter 11. The goal was to streamline the bankruptcy process by having a framework in place to restructure their massive $1.6 billion in secured debt. It was meant to ensure a quicker, more predictable outcome by getting major creditors on board early, reducing conflict and uncertainty during the bankruptcy proceedings.
There’s a lot of talk about an ‘equity rights offering’ at a discount in the Chapter 11 plan. Can you explain what that means in layman’s terms?
Sure, an equity rights offering is essentially a chance for certain creditors to buy new shares in the reorganized company at a lower price than what might be available to others. In this case, it was offered exclusively to the majority of first lien holders as part of the Chapter 11 plan. Think of it as a special deal for the big players, allowing them to gain ownership in the company post-bankruptcy at a bargain, which could potentially increase their control or financial upside down the line.
Why was this equity rights offering limited to just the majority of first lien holders, and what did that mean for the minority lenders?
The decision to limit the offering to majority first lien holders was likely strategic, aimed at rewarding those who supported the RSA and ensuring their buy-in for the plan’s success. These majority lenders had the most skin in the game and were pivotal to getting the restructuring off the ground. Unfortunately, this left minority lenders out in the cold—they were excluded from the opportunity to participate in the offering, which meant they missed out on potential financial benefits and felt marginalized in the process, contributing to the legal challenges that followed.
The District Court ultimately reversed the bankruptcy court’s confirmation of this plan. What were the main factors driving that decision?
The reversal came down to concerns over fairness and the treatment of minority lenders. The District Court found that the plan, as structured, unfairly benefited the majority lenders at the expense of the minority group. Specifically, excluding minority lenders from negotiations and key opportunities like the equity rights offering raised red flags. The court signaled that such exclusionary tactics in restructuring transactions won’t be tolerated, pushing for a more equitable approach in bankruptcy plans.
What does the court’s stance on excluding minority groups in restructuring deals suggest for the future of bankruptcy cases?
This ruling underscores a low tolerance for any restructuring plan or liability management exercise that deliberately sidelines minority stakeholders for the benefit of a select few. It’s a reminder that bankruptcy isn’t just about majority rule; the process must consider fairness across the board. For future cases, I think we’ll see courts scrutinizing plans more closely to ensure minority lenders aren’t unfairly squeezed out, which could lead to more inclusive negotiations and deal structures.
A 10% backstop fee was part of the plan. Can you explain what that is and why it mattered in this scenario?
A backstop fee is essentially a payment made to certain lenders or investors who agree to step in and purchase any unsold shares or securities in an offering, ensuring the deal doesn’t fall through. In the ConvergeOne plan, this 10% fee was offered to the majority lenders who participated in the equity rights offering. It mattered because it provided an extra financial incentive for those majority lenders, further tilting the benefits in their favor and becoming a point of contention for minority lenders who saw it as another layer of unfair advantage.
From your expert perspective, what does this ruling reveal about the dynamics between majority and minority lenders in bankruptcy proceedings?
This ruling shines a light on the often-uneven power dynamics in bankruptcy cases. Majority lenders typically hold significant sway because of their larger stake and ability to influence negotiations, but this decision shows that courts are increasingly protective of minority interests. It suggests that minority lenders may have more leverage or at least more judicial backing to challenge plans that exclude or disadvantage them. This could encourage more balanced negotiations where all parties have a seat at the table.
The debtors were trying to wipe out $1.6 billion in secured debt through this plan. Can you walk us through why that was such a cornerstone of their strategy?
Eliminating $1.6 billion in secured debt was central to ConvergeOne’s survival strategy. Secured debt is tied to specific assets, so it’s a heavy burden—if the company defaults, lenders can seize those assets. By restructuring and reducing this debt through the Chapter 11 plan, the debtors aimed to lighten their financial load, preserve their operations, and emerge from bankruptcy as a viable business. It was about creating breathing room to reorganize without the constant threat of asset liquidation hanging over them.
Looking ahead, what is your forecast for how this ruling might shape the landscape of bankruptcy and restructuring deals?
I believe this ruling will push for greater transparency and inclusivity in bankruptcy and restructuring processes. Companies and majority lenders will likely be more cautious about crafting plans that could be seen as exclusionary, knowing that courts are watching closely. We might see more effort to involve all stakeholders in negotiations, or at least to justify why certain groups are left out. Over time, this could lead to a shift in how power is distributed in these deals, with minority lenders gaining a stronger voice. It’s a step toward balancing the scales, though it may also complicate and prolong some restructuring efforts as parties navigate these new expectations.
