The US District Court for the Southern District of Texas’s ConvergeOne decision has reshaped the landscape for complex restructurings which propose plans that do not treat similarly-situated creditors equally. Five months on, the case’s ripple effects are now clearly present in complex Chapter 11 venue selection.

Chapter 11s, long valued in the restructuring world for their speed and certainty, have come under growing scrutiny as some judges have taken a more active role in evaluating the specifics of a negotiated deal, particularly in cases involving unequal treatment of creditors, either through the economics of a proposed Chapter 11 plan or pre-petition liability-management exercise.

ConvergeOne, following the trend of judicial pushback in cases like Incora, has made clear that some courts are no longer willing to rubber stamp deals negotiated before filing. As Ray Schrock, global chair of Latham & Watkins’ restructuring practice, put it in 9fin’s 2025 bankruptcy recap: “They’re trying to find a way to protect the folks that aren’t in the room.”

The result has been a growing game of venue selection, as some debtors look away from Texas and towards courts that will allow complex, pre-negotiated restructurings to move quickly and more predictably through Chapter 11.

Increasingly, the signs are pointing toward New Jersey.

STG Logistics, United Site Services, Pretium Packaging and Multi-Color have all filed for Chapter 11 in the US Bankruptcy Court for the District of New Jersey over the last six weeks, suggesting that the state is emerging as a favored forum for debtors seeking speed paired with less risky precedent when it comes to negotiated plan terms and LMEs.

Texas takes a stand on unequal creditor treatment

ConvergeOne’s prepackaged Chapter 11 was filed in Texas with strong majority lender support, reflected in a restructuring support agreement entered into with approximately 81% of first lien debt and second lien term loan debt holders. Among other terms, the RSA included a fully backstopped equity rights offering offered to certain 1L lenders, in exchange for an exclusive 10% premium on their claims.

Minority lenders objected to the plan, based on the undisputed allegation that the minority lenders were not given an opportunity to participate in the equity rights offering or backstop, claiming that this violated the requirement for equal treatment of the Bankruptcy Code. This single objection outstanding at plan confirmation was overruled. The bankruptcy court heard a contentious two-day hearing which included testimony regarding the transaction process, followed by a decision which confirmed the plan on the basis that it was negotiated in good faith and at arm’s-length with an “overwhelming majority” of first lien creditors. Given the strong support of the debtor’s plan, this outcome was not particularly shocking.

On appeal, the District Court determined that the debtors’ failure to offer the backstop opportunity to all class members and to subject it to a market test constituted unequal treatment and reversed the bankruptcy court’s confirmation order.

The District Court’s decision now threatens the certainty of pre-negotiated Chapter 11 plan success, even where a plan enters day 1 with overwhelming lender support. It shook the market’s reliance on non-pro rata backstopped rights offerings as a tool to quickly garner plan support by offering exclusive opportunities to certain lenders. Even where backstopped rights offerings are put in place, post-ConvergeOne debtors planning on filing in Texas are now faced with the prospect of more inclusive negotiations with similarly-situated lenders — and so they’re heading east. These steps may not be feasible for debtors facing a race against liquidity or attractive for lenders looking to maximize return with the advantageous terms that exclusivity can offer.

ConvergeOne finds company in the records of the Bankruptcy Court for the Southern District of Texas with Incora, another case that called into question the speed and certainty of the Chapter 11 process, this time by casting doubt on the Court’s willingness to bless pre-petition liability management transactions in a Chapter 11.

Incora’s bankruptcy case saw a number of controversial LME transactions placed under enhanced scrutiny throughout multiple bankruptcy adversary proceedings. Following a refusal to grant summary dismissal on a number of issues, Judge Marvin Isgur (aided by Judge Christopher Lopez in a two-judge panel) heard multiple contract and tortious interference claims from Incora creditors who were primed in a series of transactions that allowed certain other lenders to exchange their existing debt into secured notes senior to the creditors left behind.

Judge Isgur ultimately determined that the first of a series of non-pro rata priming transactions was unauthorized. While his ruling clarified that the decision’s scope was limited to the facts of the case before him, and not about uptiering transactions generally, the full trial and outcome of these issues demonstrated the bankruptcy court’s willingness to get deeply involved in and invalidate complex pre-petition transactions. It sent a message that the presumption of validity of these types of transactions does not automatically lie with the debtor (despite what many believed in the debtor-friendly Southern District of Texas).

Judge Isgur’s ruling was later appealed and overturned by Chief Judge Randy Crane of the US District Court for the Southern District of Texas. Judge Crane found that the non-pro rata priming transactions were not prohibited by the indentures and, even if the transactions did breach the indentures, that the appropriate remedy was not to unwind the transactions, but to seek monetary damages. Incora’s minority lenders have filed a notice of appeal of Judge Crane’s decision, which is pending before the US Court of Appeals for the Fifth Circuit.

These cases signal that the days of anything goes in debtor-friendly Texas, so long as debtors are “reasonable” and supported by a majority, are becoming a memory.

What debtors are seeking by filing in the Garden State

So far, New Jersey’s bankruptcy court has not mirrored the heightened scrutiny seen in Texas when it comes to backstop rights or pre-petition LMEs, according to a 9fin analysis of recent filings. That relative predictability — combined with an ability to move cases quickly — has made the venue increasingly attractive for debtors pursuing pre-negotiated Chapter 11s.

But recent disputes in cases including STG and Del Monte Foods suggest that the same post-LME fault lines that unsettled Texas courts may be beginning to surface in New Jersey.

In STG’s case, the court granted interim approval of the company’s contested DIP financing at its first-day hearing. But minority lenders Axos Financial and Siemens Financial Services have since escalated their fight, which was previously the subject of ongoing litigation in New York state court, arguing that final approval of the DIP would improperly lock in the economic consequences of STG’s October 2024 drop-down LME before that transaction’s merits can be determined.

The DIP structure — which primes pre-petition liens and rolls up only favored lenders’ debt — would function as a de facto validation of a disputed LME, the minority lenders argue in their complaint. In their latest objection to the DIP, they made a plea for Judge Mark E. Hall to include certain protections in the final DIP order, if the proposed DIP is approved, which would preserve their rights in the LME dispute. They have also filed an adversary proceeding for the LME dispute to be heard before the bankruptcy court. The treatment of this complex LME dispute, both procedurally and on the merits, will put to the test New Jersey’s newfound reputation as the pro-debtor destination.

DIP financing is at the core of a similar dispute regarding Del Monte, which filed for Chapter 11 in July 2025 following a drop-down LME transaction in August 2024. While the LME transaction was the subject of litigation in October 2024, when Black Diamond filed a complaint on behalf of non-participating lenders in the Delaware Court of Chancery, a settlement to this litigation was reached. Per the terms of the settlement, all stub indebtedness held by lenders that did not participate in the LME was retired, funded by an incremental increase to the new money first-lien term loan under the super-senior credit facility, which increased the company’s total debt by $20m (net of the repayment on the stub debt).

The issue currently playing out in the bankruptcy court stems from this settlement and its knock-on effect on the approved DIP. Minority lenders filed an adversary proceeding against the majority ad hoc group, claiming that the incremental loans that were raised to fund the settlement effectively transferred value out of the debtors’ estates, while diluting the rest of the second out and third out lenders under the super-senior credit facility. The final approved DIP, which included a roll up of a portion of the existing first out term loan (upsized to fund the settlement), was a breach of the terms of the super-senior credit agreement and amounts to a violation of a sacred right, according to the minority lenders. The ghost of LME past continue to haunt Del Monte as we await resolution of this proceeding before Judge Michael Kaplan.

Platinum Equity-backed United Site Services completed a 2024 double-dip LME and found itself filing a prepackaged Chapter 11 in New Jersey’s bankruptcy court the following year, with a RSA that contemplated plan confirmation within 60 days. Despite contentious first day objections to the DIP from CastleKnight, a lender excluded from participation in the LME, the parties were able to reach a settlement, which was approved by the Court as part of the final DIP order. The case is slated to swiftly reach confirmation well ahead of the proposed RSA schedule, reaffirming New Jersey’s ability to quickly move a debtor through the Chapter 11 process.

For now, New Jersey remains a preferred destination for companies seeking speed and certainty in pre-negotiated Chapter 11s. But as LME-related disputes migrate with them, the durability of that advantage may soon be tested.

The resistance lives

The latest Chapter 11 filings in New Jersey include Pretium Packaging and Multi-Color — two situations that highlight the state’s growing pull as a debtor-friendly venue in cases with unequal economics. Pretium, which was filed on 28 January, is a post-LME restructuring, while Multi-Color, filed 29 January, involves a DIP with non-pro rata creditor treatment. Rather than sparking immediate fights over deal terms, both cases are instead pushing the debate upstream — toward whether New Jersey is the proper forum for these cases at all.

Pretium’s first day hearing on 30 January was largely consensual, with debtors securing all requested interim relief including approval of two DIP facilities. But Jeffrey Sponder of the US Trustee’s office jumped in during the hearing, objecting to language in the proposed orders stating that venue in New Jersey was proper. He argued that the US Trustee does not believe debtors put on enough evidence to establish venue and asked that the orders either reserve its right to challenge venue, or simply note that the debtors “assert” that venue is proper.

Judge Mark Hall, who was sitting in for Judge Christine Gravelle, noted the objection but declined to make any finding on venue, instead advising that the issue should be pursued via a formal motion.

Multi-Color’s first day hearing, meanwhile, put venue squarely in play. Less than an hour before the hearing began, a crossover ad hoc group filed a motion seeking dismissal or a transfer of the case to Delaware. When the parties appeared before Judge Michael Kaplan, the group’s counsel flagged what they see as a fatal flaw in the New Jersey filing, arguing that the debtors’ own petitions point to Atlanta as the principal place of business and Ohio as the state of incorporation, with no clear basis for venue in New Jersey.

Judge Kaplan declined to take up the venue question at the first-day hearing, saying the court’s limited time was better spent addressing relief critical to keeping the business afloat. He did, however, reserve all parties’ rights, leaving open the possibility for a venue change down the road — and a hearing to consider the ad hoc group’s venue motion is set for 25 February.

For now, New Jersey remains an attractive destination for debtors seeking fast, pre-negotiated Chapter 11s with a higher degree of predictability around plan confirmation. But as venue challenges and LME disputes become more common in the venue, that advantage could erode.

Texas, meanwhile, is far from falling out of favor. For larger, more complex restructurings — particularly those involving aggressive or bespoke DIP financing — the Southern District of Texas continues to be a natural choice for many companies, as evidenced by the recent filings of First Brands, FAT Brands and Saks Global.