Alert
Illinois Receivership Considerations
Last summer, Illinois enacted the Illinois Receivership Act (the “Act”). The Act, which became effective on January 1, 2026, establishes a comprehensive statutory framework for receiverships. Previously in Illinois, receivership law consisted of a mix of cursory statutes, aging case law and varying local practices and rules, resulting in a receivership process that was often cumbersome and unpredictable. The Act is designed to bring more clarity and predictability to the receivership process, making it a useful and cost-effective tool for creditors in some circumstances. Receiverships are often initiated by secured lenders and may be commenced with or without the consent of the debtor. Under the Act, a receivership can be initiated for any type of business entity, including corporations, LLCs, partnerships and trusts, and is binding on interests in both real property and personal property. While a bankruptcy proceeding may still be the best option if a borrower has a complex capital structure, needs to reject burdensome executory contracts or leases, or faces significant mass tort or legacy liabilities, a receivership is a useful tool where the collateral package is discrete, geographically concentrated and readily monetized, the borrower has stable cash flows, and there is limited creditor complexity. A receivership can allow a lender to stabilize assets with less litigation overhead and pursue targeted sale processes without the time and cost typically associated with the more complex bankruptcy process. Receiverships may also be advantageous where speed is critical, such as in cases where there is ongoing waste, fraud, or mismanagement or where the market for selling collateral is volatile. While previously an Illinois receivership was an unpredictable process, it is now a viable option for creditors and can be considered as a viable option for certain distressed borrowers.
DIP Roll Ups
In recent years, debtor-in-possession (DIP) financing that includes a significant roll-up of existing debt has become an increasingly common feature in bankruptcy proceedings. Data from 2025 indicates that rollups were involved in about 82 percent of middle market and large cap bankruptcies, and ratios of rolled-up debt to new money were as high as 4:1.[1] However, a series of recent case decisions underscores the importance of carefully planning any DIP rollup, particularly one that will not involve all lenders on a pro rata basis. First, in late 2024, in the bankruptcy of tire distributor American Tire, the Delaware bankruptcy court held that non-pro rata DIP rollups are permissible, but that the terms of the prepetition credit agreement would continue to govern potential claims between lenders. Faced with the likelihood that the credit agreement would be interpreted to prohibit the non-pro rata rollup and that any litigation would be decided unfavorably to the DIP lenders, the DIP lenders agreed to remove the rollup. Similarly, in the bankruptcy proceedings of metal producer US Magnesium in September of 2025, the Delaware bankruptcy court carefully scrutinized the proposed DIP rollup and ultimately agreed with concerns from the U.S. trustee that the DIP was designed to improperly channel the case toward a single lender bid path as part of a “DIP to own” strategy. Subsequently, in October of 2025, in proceedings related to the bankruptcy of tech company ConvergeOne, the U.S. District Court for the Southern District of Texas also expressed concern about approving a transaction that did not treat creditors equally. While the ConvergeOne matter involved a pre-pack Chapter 11 plan rather than a DIP, the court issued a potentially broad ruling that a court must examine inequality in both opportunity and result when analyzing whether a plan treats creditors of the same class equally for purposes of compliance with the bankruptcy code. In ConvergeOne, the court also invoked the Serta decision, where the Fifth Circuit held that granting an indemnity in connection with the pre-bankruptcy liability management transaction violated the bankruptcy code because it effectively treated the participating creditors different than the excluded creditors. Going forward, lenders should understand that non-pro rata roll-ups and other non-pro rata restructuring arrangements will draw more scrutiny from bankruptcy courts and may expose participants to intralender liability. When structuring a DIP roll-up, it is especially important to review the provisions of existing loan documents, build a robust record of the necessity and benefit of the DIP, and be prepared with pro rata alternatives or concessions to mitigate equality-of-treatment concerns and reduce litigation risk.
LMT Litigation Whiplash
In an early (and short-lived) win for excluded lenders, in early 2025 the U.S. Bankruptcy Court for the Southern District of Texas ruled that a collateral release consent obtained by issuing additional notes in order to reach the necessary voting threshold was invalid because the amendment authorizing the new debt “had the effect of” causing the release of collateral. In December, the district court reversed the bankruptcy court’s decision, holding that because the lien release was effectuated by a separate document that did not expressly reference the previous amendments, it was effectuated in compliance with the indenture. Invoking the Fifth Circuit’s Serta decision for textual fidelity, the court reached a different outcome because the Incora indenture expressly allowed majority‑consent issuance of additional pari passu notes and two‑thirds consent to release collateral. The court refused to collapse the amendments into a single transaction to find that previous amendments “had the effect of” releasing the collateral. Though the transactions were effectuated on the same day and with signatures released simultaneously, the court noted that the parties could have rescinded their signatures to the collateral release amendment at any time prior to Incora’s receipt of the wire for the loan increase, though noted that such a rescission “might well have triggered litigation,” without any further analysis of the importance of that fact. The court further analyzed the word “effect” in the context of a legal transaction, suggesting that an analysis of the “effect” of a document should be limited to the document itself, and to find otherwise raises “difficult line-drawing problems.” While it remains to be seen whether the decision will be appealed to the Fifth Circuit and what the outcome may be, it is important to be aware in the meantime that amendment and sacred rights language that extends to amendments that “have the effect of” a particular action may not offer sufficient protection in scenarios where otherwise linked transactions are documented separately.
Legal Tech Update
As part of Goldberg Kohn’s commitment to an innovative and results-driven legal practice, we have recently adopted legal technology tool Harvey AI for use across various practice groups at the firm. Our incorporation of Harvey AI into our workstreams continues to expand and evolve. Harvey AI may enable our teams to deliver faster and more precise legal support, including supporting efficient due diligence and comparison of documentation terms and accelerating and improving research. All usage of Harvey AI is underpinned by rigorous attorney oversight and enterprise-grade security to deliver results without compromising confidentiality or judgment.
This newsletter is provided by Goldberg Kohn's Commercial Finance and Bankruptcy & Creditors' Rights practices. The attorneys in these practices collaborate to represent a diverse group of banks, commercial finance lenders, providers of mezzanine loans and other institutional lenders engaged principally in middle market lending operations. Goldberg Kohn is known for the depth of its practice, providing practical legal guidance, efficient staffing, and ability to facilitate smooth closings.
If you have any questions about this newsletter, please contact our Director of Knowledge Management and Innovation, Laura Jakubowski, or the Goldberg Kohn attorney with whom you normally consult. The information contained herein is provided for general information purposes only, and for review and use only by the direct recipient of this newsletter. The information contained in this newsletter is not intended to be and should not be relied upon as legal advice.
[1] Data from: DIP Rollups: The Final Frontier for Creditor-on-Creditor Violence, Octus, October 29, 2025.
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Director of Knowledge Management and Innovation