In 2025, the US Court of Appeals for the Fifth Circuit took a notable stance against efforts by certain secured lenders and equity holders to secure preferential treatment over other creditors within the same class in Chapter 11 bankruptcy cases. Key rulings, such as in the Serta and ConvergeOne cases, emphasized strict adherence to Bankruptcy Code Section 1123(a)(4), which mandates equal treatment of claims within a class. The court scrutinized arrangements that favored select insiders or majority creditors—like uptier indemnities or exclusive backstop rights—highlighting the need to assess the actual impact on similarly situated creditors rather than just the plan’s language. This judicial approach aims to redistribute power more equitably among creditors, limiting insider advantages and promoting fairness.

These decisions have influenced bankruptcy proceedings in Texas, with judges increasingly rejecting insider-favored deals, as seen in the Genesis Healthcare case where a sale to an insider stalking-horse bidder was blocked due to fairness concerns. While these rulings signal a shift toward protecting broader creditor interests within the Fifth Circuit, it remains uncertain whether courts in other jurisdictions will adopt similar interpretations. Overall, the Fifth Circuit’s 2025 decisions reflect a judicial trend toward leveling the playing field among creditors in Chapter 11 reorganizations, curbing preferential treatment that undermines equitable outcomes.