Marking the boundaries of secured and undersecured in multi-debtor Chapter 11 cases: collecting postpetition interest under 506(b) of the Bankruptcy Code

The U.S. Bankruptcy Court for the Southern District of New York recently considered whether in a multi-debtor Chapter 11 proceeding, a secured lender must be oversecured in respect of collateral held in each individual Chapter 11 estate in order to collect postpetition interest and fees under Section 506(b) 'from that entity' or whether collateral should be aggregated across all debtors for purposes of making the 506(b) determination. The authors explain the case and its implications.
Bankruptcy can be unfriendly terrain for a creditor seeking to recover on a claim against a distressed entity. This is the case even for purportedly secured institutional lenders. Indeed, risks [...]