The U.S. Supreme Court on Monday refused to reopen a high-stakes dispute over how creditors were compensated in the bankruptcy of Texas oil driller Sanchez Energy, leaving intact a Fifth Circuit ruling that overturned a controversial valuation decision by a federal judge.
High Court Lets Fifth Circuit Ruling Stand
The justices denied certiorari to a group of unsecured creditors who argued that a Texas bankruptcy judge wrongly allowed them to claim both property and value recoveries—what secured lenders called an impermissible “double dip”—when he awarded them majority control of the reorganized company.
The Fifth Circuit had reversed the ruling earlier this year, finding that U.S. Bankruptcy Judge Marvin Isgur misapplied clawback principles under the Bankruptcy Code while determining equity allocations in the restructured company, now known as Mesquite Energy.
Sanchez’s Fall and the Controversial Equity Split
Sanchez Energy, once operating 2,400 oil and gas wells, entered Chapter 11 in August 2019. In April 2020, Judge Isgur approved a restructuring plan converting debt—and $150 million in debtor-in-possession financing (DIP)—into equity in the new entity.
Under that plan:
