ConvergeOne: Restructuring Risk and Plan Certainty

On September 25, 2025, the U.S. District Court for the Southern District of Texas reversed key portions of the bankruptcy court’s approval of ConvergeOne’s prepackaged Chapter 11 bankruptcy plan, holding that exclusive backstop and equity subscription rights granted to a subset of prebankruptcy firstlien creditors violated 11 U.S.C. § 1123(a)(4) by granting unequal treatment to similarly situated lenders.

The decision intensifies scrutiny of non-pro rata exit financing structures in Chapter 11, raises fresh concerns about Chapter 11 plan finality, and compels investors to rethink both execution strategy and disclosure frameworks in distressed scenarios. For sponsors, borrowers, lenders, and their counsel, the message is clear: To ensure certainty in Chapter 11, parties should prioritize a disciplined approach to inclusive outreach to similarly situated lenders, incorporation of defensible market tests, rigorous documentation of steps taken to ensure fairness, and cost controls.

In many scenarios, the value-maximizing path may lie outside the courtroom — but where bankruptcy remains necessary, a confirmed Chapter 11 plan may not be the final word if the process to negotiate the plan and substance of the plan do not meet the heightened bar laid out in the district court’s opinion.