Now you’re insolvent, now you aren’t …

Ultra Petroleum entered bankruptcy because of a sharp decline in natural gas prices. During the bankruptcy case, however, the price of gas recovered and soared and “propelled the debtors back into solvency.” That fortunate situation led to the question whether the “solvent debtor” concept survived recent Bankruptcy Code amendments.

The Fifth Circuit’s panel majority applied the relevant statutory-interpretation framework:

We must defer to prior bankruptcy practice unless expressly abrogated. The [Supreme] Court has endorsed a substantive canon of interpretation regarding the Bankruptcy Code vis-à-vis preexisting bankruptcy doctrine. Namely, abrogation of a prior bankruptcy practice generally requires an “unmistakably clear” statement on the part of Congress; any ambiguity will be construed in favor of prior practice.

(citations omitted), and concluded that the exception continued to apply:

The reason for this traditional, judicially-crafted exception is straightforward: Solvent debtors are, by definition, able to pay their debts in full on their contractual terms, and absent a legitimate bankruptcy reason to the contrary, they should. Unlike the typical insolvent bankrupt, a solvent debtor’s pie is large enough for every creditor to have his full slice. With an insolvent debtor, halting contractual interest from accruing serves the legitimate bankruptcy interest of equitably distributing a limited pie among competing creditors as of the time of the debtor’s filing. With a solvent debtor, that legitimate bankruptcy interest is not present. 

Ultra Petroleum Corp. v. Ad Hoc Committee, No. 21-20008 (Oct. 14, 2022) (citations omitted). A dissent read the Code differently.