Restructuring

Bankruptcy courts are sometimes asked to determine whether a proposed settlement of intercompany claims among affiliated debtor entities—statutory “insiders”—should receive the deference courts ordinarily afford to business judgment or “heightened” scrutiny.  A July 2026 decision from Judge Alfredo Pérez of the United States Bankruptcy Court for the Southern District of Texas, confirming the joint prepackaged plan of reorganization for QVC Group, Inc. and its affiliates, offers a roadmap for practitioners seeking to structure corporate governance that can withstand challenge.  The decision is currently on appeal before the United States District Court for the Southern District of Texas.

QVC’s Governance Reforms

Beginning in September 2025, the debtors implemented a series of governance changes designed to ensure that each of four key entities had fiduciaries capable of independently advocating for its own stakeholders.  Each entity appointed its own independent directors, and no independent director served on more than one key entity’s board.  The entities formed special committees or boards comprised solely of independent directors with exclusive authority over any matter for which a conflict existed or was reasonably likely to exist between the entity and its affiliates, including with respect to any intercompany settlement.

Each governing body also retained separate conflicts counsel and no conflicts counsel represented more than one key entity.  The company’s primary restructuring counsel served as a shared advisor facilitating information flow but not directing conclusions.

Investigation and Negotiation

Between their appointment in fall 2025 and the April 2026 petition date, the independent directors engaged in what the court described as a “fulsome and comprehensive assessment” of potential claims against affiliates, including actual and constructive fraudulent transfers and illegal dividends, and their respective defenses.

The four governing bodies collectively reviewed tens of thousands of documents, participated in over 25 meetings—which included inter-entity diligence sessions and negotiations—and conducted seven separate 90-minute interviews of former and current executives.  They commissioned and reviewed forensic analyses from a financial advisor, insolvency analyses from an investment banker, and independent tax analyses.  Each group arrived at its own conclusions about the strength and magnitude of the intercompany claims.

Negotiations exhibited the hallmarks of genuine arm’s-length dealing.  In addition to inter-entity meetings, the entities exchanged, negotiated, and revised term sheets.  The court found the ultimate terms were “not preordained, but rather were reached as part of a thorough, complete, and arm’s-length process.”

Court’s Business Judgment Analysis

Objecting preferred shareholders argued that because the settlement was between statutory insiders, the court should apply the heightened “entire fairness” standard drawn from state corporate law evaluating both the fairness of the process and the fairness of the price.

Judge Pérez rejected this approach, starting with the observation that entire fairness “as a concept derives from state-level corporate law principles,” specifically Delaware’s Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983) and its progeny.  He held that these state-law principles do not automatically displace the federal bankruptcy settlement inquiry.  “[T]he Fifth Circuit has not adopted a categorical rule requiring application of entire fairness to a 9019 merely because the settlement involved debtor-affiliates.”

The court acknowledged that entire fairness review has been applied in some bankruptcy cases involving insider transactions, but it drew a distinction: in each of those cases, the parties either stipulated to the application of entire fairness (citing Vanderbilt Minerals) or the facts demonstrated that directors who approved the deal sat as fiduciaries for entities on both sides (citing Latam Airlines Group and Soundview Elite).

Here, by contrast, “no direct evidence was introduced to demonstrate (i) the siloed structure of the Disinterested Directors and Special Committees at each Key Entity was deficient to resolve potential conflicts; (ii) that the Disinterested Directors themselves were conflicted; or (iii) that conflicts counsel was conflicted/created a conflict.”  The directors who negotiated the releases were not the directors who had authorized the original dividends and intercompany transactions.  The joint debtor advisors provided information but did not dictate outcomes.  The objecting preferred shareholders also argued the independent directors were personally conflicted because they stood to receive releases under the chapter 11 plan.  The court rejected this, finding debtor releases were “standard practices” that did not create disqualifying conflicts.

Judge Pérez also noted that unlike in Foster Mortgage, where the Fifth Circuit expressed concern about an overwhelming majority of creditors opposing a settlement, no creditor objected to the intercompany settlement.  The only objectors were holders of preferred equity interests, not creditors.

Having found no actual conflict, the court applied the deferential business judgment standard and concluded that the settlement “reflects a sound exercise of the Debtors’ business judgment.”

Key Takeaways

First, the decision establishes a practical blueprint for earning business judgment deference in intercompany settlements.  Appointing truly independent fiduciaries at each entity level with its own stakeholders, equipping each with separate conflicts counsel, and allowing a robust investigation and negotiation process to unfold can convert what would otherwise appear to be an “insider” transaction into one deserving of judicial deference.

Second, the court’s analysis confirms that the mere existence of a parent-subsidiary or affiliate relationship does not automatically trigger a review under the entire fairness standard.  The relevant question is whether the facts demonstrate that one party stood on both sides at the time of the settlement negotiation, not at the time of the original intercompany transaction.  The distinction is critical: the historical transactions may well have involved overlapping management and conflicted governance, but where governance reforms implemented before the settlement process eliminate that overlap, the more deferential standard should apply.

Third, the decision underscores that fiduciaries need not “exhaust all resources” or achieve the theoretically optimal outcome to satisfy their duties.  The disinterested directors settled within a “range of reasonable litigation alternatives” after independently determining that the claims were highly uncertain and that litigation would be expensive, protracted, and value-destructive.  Under business judgment deference, it was “not the province of the Court to second guess those determinations.”