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Lenders to bankrupt firms are increasingly demanding the use of a controversial contract clause that bolsters their investments in exchange for giving companies a chance at survival, Bloomberg News reported. Known as a roll-up, the provision moves existing debt to the front of the repayment line in lockstep with newly lent money. Senior lenders often require the maneuver when no one else is willing or able to give a bankrupt company turnaround financing. The structure is divisive because it frequently soaks up the scraps an insolvent company hasn’t yet put up as collateral, and which could have helped repay lower-ranking creditors. Rolled-up debt also has to be repaid in cash, limiting the restructuring options available to the borrower. But more and more, bankrupt firms and the judges overseeing them are being forced to accept roll-ups because without new cash, they risk shuttering entirely. The trend is a sign that lenders are amassing more leverage over failed companies as the rates of corporate default and bankruptcies climb. “I hate those things,” said Bruce Markell, a former bankruptcy judge who is now a professor at Northwestern Pritzker School of Law. “It’s a great strategy, you know — if you’re the lender. It’s a game of chicken in the sense that the debtor says, ‘we’re going down unless this happens.’” Although the provision has been around for years, roll-ups are becoming bigger and more prevalent, according to figures compiled by BankruptcyData. The proportion of chapter 11 cases that involve the maneuver has steadily increased since 2021, according to the research.

A federal judicial ethics probe into former U.S. Bankruptcy Judge David Jones's failure to disclose his romantic relationship with a lawyer whose firm regularly appeared before him has come to an end following the Houston judge's resignation, Reuters reported. The chief judge of the 5th U.S. Circuit Court of Appeals, Priscilla Richman, in an order on Wednesday said that further action was "unnecessary" after Jones last month submitted his resignation as a Southern District of Texas bankruptcy judge. Jones announced plans to resign on Oct. 15 after acknowledging to the Wall Street Journal that he had been in a years-long romantic relationship with bankruptcy attorney Elizabeth Freeman and shared a home with her. Freeman until recently worked at Jackson Walker, a local law firm that worked on many corporate bankruptcy cases in Jones' Houston courthouse. Jones's resignation came shortly after the 5th Circuit had launched an ethics inquiry and Judge Richman's filing on Oct. 13 of a misconduct complaint that found there was probable cause to believe Jones violated the codes of conduct that govern judges. Richman's complaint said Jones never recused himself from cases involving Jackson Walker or disclosed his relationship with Freeman. He also approved attorneys' fees sought by the firm for work on matters in which billing records showed Freeman performed "substantial" services, Judge Richman said.