Introduction

Judge James Garrity of the U.S. Bankruptcy Court for the Southern District of New York recently denied motions to approve a novel DIP financing provided in part by a group of controlling shareholders that would allow the company to repay the shareholder loans with discounted equity of the reorganized debtor. In re LATAM Airlines Group, Case No. 20-11254 (JLG) (Bankr. S.D.N.Y. Sept. 10, 2020). Judge Garrity ruled that the proposed DIP amounted to an impermissible sub rosa plan of reorganization by “prematurely allocating reorganization value to LATAM’s existing equity holders.”