Actual Fraud or Nothing: Market-Tested Sale Findings and Appellate Record Limits Defeat § 1144 Revocation in Virgin Orbit

Introduction

This commentary analyzes the Third Circuit’s non-precedential decision in In re Virgin Orbit, LLC (No. 25-1702, 3d Cir. Sept. 26, 2025), affirming the District Court’s order that upheld the Bankruptcy Court’s denial of a motion to revoke plan confirmation under 11 U.S.C. § 1144. The appeal was brought by an equity holder, Dr. Tamas Hampel, who alleged that the plan was “procured by fraud” because, in his view, Virgin Orbit’s remaining intellectual property (IP) was vastly undervalued and later transferred to an affiliate secured lender under the confirmed plan.

The case sits at the intersection of several core bankruptcy principles: the high bar for revoking a confirmed plan under § 1144, the primacy of market-tested valuations derived from court-approved sale processes, the finality and preclusive effect of sale and confirmation orders, and the strict limitation on appellate courts to the record made in the bankruptcy court. While designated “not precedential,” the opinion is instructive for parties contemplating post-confirmation attacks premised on alleged undervaluation, particularly where the bankruptcy court has already made explicit findings about the fairness and good faith of the sale process.

Background

Virgin Orbit, LLC—a satellite launch enterprise—filed Chapter 11 in April 2023. It obtained debtor-in-possession (DIP) financing from Virgin Investments Limited (VIL), its indirect parent and prepetition senior secured lender. Under court-approved bidding procedures, Virgin Orbit sought to sell substantially all assets. A going-concern sale failed to materialize; the estate instead segmented assets into five groups, all of which sold to non-insider buyers (four via auction, one via post-auction negotiation). The bankruptcy court approved the sales, finding the process fair, the decisions supported by sound business reasons, the negotiations arm’s length, the buyers non-insiders, and the consideration fair and the highest and best.

A set of IP assets remained unsold because the market offered only de minimis value. Following the sales, VIL accepted significantly less than full repayment through a global settlement embedded in the plan, which satisfied administrative and priority claims and yielded a small distribution to unsecured creditors. As part of its allowed claim recovery, VIL obtained the remaining IP assets. Equity interests, including Dr. Hampel’s, were cancelled. He did not object to the plan and no appeal was taken from the confirmation order.

Approximately five months after confirmation, Dr. Hampel moved to revoke the confirmation order under § 1144, asserting the IP was worth $3.7 billion and that the plan’s treatment—cancelling equity and transferring IP to VIL—was procured by fraud. He cited, among other things, Virgin Orbit’s earlier public-company valuation, expressions of governmental interest in launch technology, and later materials he characterized as supporting a multi-billion-dollar IP value. The bankruptcy court denied the motion, holding that res judicata barred attacks on the already-approved sale process and that he failed the § 1144 fraud standard. The district court affirmed and denied his motions to consider new evidence beyond the bankruptcy record. The Third Circuit affirmed.

Summary of the Opinion

The Third Circuit held:

The district court, sitting as an appellate court, properly refused to consider new evidence not part of the bankruptcy court record. See In re Madera, 586 F.3d 228, 234 (3d Cir. 2009).
Revocation under § 1144 is available “if and only if” the confirmation order was procured by fraud, which requires a showing of actual fraudulent intent. See 11 U.S.C. § 1144; In re Longardner & Assocs., Inc., 855 F.2d 455, 461–62 (7th Cir. 1988).
Dr. Hampel failed to demonstrate actual fraudulent intent. His contention that the IP was undervalued could not overcome the market-tested results of the court-approved sale process—“the market’s reaction to a sale best reflects the economic realities of assets’ worth.” See In re SubMicron Sys. Corp., 432 F.3d 448, 461 (3d Cir. 2006).
Attacks on the sale process were barred by res judicata because the bankruptcy court had entered final sale orders with explicit findings of fairness, good faith, and highest-and-best consideration, and plan confirmation was final.
Invoking In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143 (3d Cir. 1986), did not help the appellant because, unlike in Abbotts, here the bankruptcy court made the requisite good-faith findings concerning the sales, permitting reliance on market outcomes.
Arguments raised for the first time on appeal were forfeited. See Simko v. U.S. Steel Corp., 992 F.3d 198, 205 (3d Cir. 2021).

Detailed Analysis

Precedents Cited and Their Role

11 U.S.C. § 1144: The statutory lynchpin. Revocation is permitted on a timely motion and with appropriate safeguards “if and only if” the confirmation order was procured by fraud. The court highlights the exclusivity and stringency of this remedy.
In re Madera, 586 F.3d 228 (3d Cir. 2009): Confines appellate review to the record made below. The district court correctly refused to consider the appellant’s post-confirmation “new evidence” about IP valuation.
In re Longardner & Assocs., Inc., 855 F.2d 455 (7th Cir. 1988): Establishes that § 1144 requires “actual fraudulent intent.” The Third Circuit adopts this requirement, consistent with other courts, as the governing mental state for revocation.
In re Michelson, 141 B.R. 715 (Bankr. E.D. Cal. 1992): Observes that “fraud upon the court” sits at the heart of the phrase “procured by fraud” in § 1144, underscoring the seriousness and exceptional character of the remedy.
In re Melinta Therapeutics, Inc., 623 B.R. 257 (Bankr. D. Del. 2020): Cited by the bankruptcy court for the § 1144 framework. Melinta is frequently invoked for the elements and the movant’s burden under § 1144, including the requirement of actual deception that materially affects confirmation.
In re D.F.D. Inc., 43 B.R. 393 (Bankr. E.D. Pa. 1984): Failure to produce evidence of fraudulent intent at the hearing defeats a § 1144 claim. The Third Circuit analogizes: disagreement with valuation is not evidence of intent to defraud.
In re SubMicron Sys. Corp., 432 F.3d 448 (3d Cir. 2006): The lodestar for market valuation in distressed contexts—market reaction best reflects asset worth. The court relies on SubMicron to reject ex post higher-value assertions when a fair sale process has been judicially vetted.
In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143 (3d Cir. 1986): Requires explicit bankruptcy court findings of good faith in § 363 sales. The appellant’s attempt to analogize falls flat because, here, the bankruptcy court did make such findings, validating reliance on market outcomes.
Simko v. U.S. Steel Corp., 992 F.3d 198 (3d Cir. 2021): Forfeiture of arguments not raised below. The Third Circuit invokes Simko to cabin the scope of review.
In re Fegeley, 118 F.3d 979 (3d Cir. 1997) and In re Trans World Airlines, 145 F.3d 124 (3d Cir. 1998): Standards of review—clear error for factual findings and de novo for legal conclusions in bankruptcy appeals.
In re Vandeweghe, 49 F.2d 939 (S.D.N.Y. 1931): Fraud is not to be inferred; it must be proved—an early articulation that reinforces the heavy burden under § 1144.

The Court’s Legal Reasoning

The Third Circuit’s reasoning proceeds in three steps: (1) confining the case to the proper record; (2) applying the stringent § 1144 fraud standard; and (3) relying on final, explicit sale findings and market outcomes to refute allegations of undervaluation.

Appellate record limits: Sitting in an appellate posture, the district court could not consider evidence not presented to the bankruptcy court. The appellant’s new expert materials and a video interview went to valuation, but were not part of the bankruptcy record. Madera controls; the district court correctly excluded them and, in any event, deemed them irrelevant to whether the confirmation order was procured by fraud.
§ 1144 requires actual fraudulent intent: The statute’s “if and only if” language, combined with Longardner and similar cases, cabins revocation to situations of intentional deception. The appellant’s theory—essentially that the debtor and DIP lender misstated or downplayed IP value—never coalesced into evidence of actual intent to deceive the court in obtaining confirmation.
Market-tested valuation and prior sale findings control: The bankruptcy court had already determined the bidding procedures were fair, negotiations arm’s length, buyers non-insiders, and consideration highest and best. That set of findings squarely invokes SubMicron’s market-primacy principle. Disagreement with the price discovered through a fair process is not fraud. Attempts to recast the § 363 process as flawed run into res judicata because the sale orders and confirmation order became final, and neither was appealed. Abbotts Dairies is inapposite because the bankruptcy court did make good-faith findings here.

Res Judicata and Waiver

The bankruptcy court deemed attacks on the sale process barred by res judicata, a conclusion the appellate courts accepted. Final sale orders and a final confirmation order preclude later collateral attacks that rehash whether the marketing was robust, the timing fair, or bidders excluded—especially when those issues were or could have been raised before. Separately, the Third Circuit refused to entertain arguments raised for the first time on appeal under Simko.

Impact and Significance

Although not precedential, this decision materially reinforces several propositions that will shape Chapter 11 practice in the Third Circuit and beyond:

Revocation is extraordinary: § 1144 is not a vehicle for re-litigating valuation or process complaints after confirmation; it requires clear evidence of intentional deception that tainted the confirmation itself.
Market price beats hindsight: Where the bankruptcy court has made explicit findings that the sale process was fair and arm’s length and the consideration highest and best, SubMicron’s market benchmark will defeat post hoc claims of higher value—particularly for intangible assets like IP.
Finality is real: Sale and confirmation orders carry substantial preclusive force. Parties who sit out the sale or confirmation fight (or fail to appeal) face steep barriers to any later § 1144 gambit.
Appellate record discipline: New valuation “proof” cannot be introduced for the first time on appeal. Parties must build the evidentiary record in the bankruptcy court.
DIP settlements with insiders survive scrutiny: Even where a DIP lender is affiliated with the debtor’s owner (as here), a well-documented, court-approved sale process and a global settlement that funds priority claims and modestly pays unsecureds can withstand § 1144 attacks absent proof of fraud.

Complex Concepts Simplified

DIP financing: Postpetition loans approved by the bankruptcy court to fund operations during Chapter 11. DIP lenders often get superpriority status. Here, VIL—a prepetition senior secured lender and affiliate—provided DIP financing.
§ 363 sale and bidding procedures: The debtor sells assets under court-approved procedures designed to maximize value. The court often makes findings that the process was fair, the buyer acted in good faith, and the price was the highest and best obtained.
Good-faith purchaser findings (Abbotts Dairies): The bankruptcy court must find that buyers acted in good faith; such findings enhance sale finality and protection. Once made, courts may rely on those sale results as reflecting market value.
§ 1144 revocation: A narrow, time-limited remedy permitting revocation of a confirmation order only if it was “procured by fraud.” Courts require proof of actual fraudulent intent—more than negligence, disagreement, or hindsight.
Res judicata (claim preclusion): Once a final judgment issues, parties cannot relitigate claims or issues that were or could have been raised. Final sale orders and confirmation orders thus bar later collateral attacks on process or valuation.
Appellate record rule: Appellate courts review the record made in the trial court (here, the bankruptcy court). New evidence generally cannot be added on appeal.
Market-based valuation (SubMicron): In distressed contexts, the price obtained through a fair, open sale process is the best indicator of value. Assertions of higher value must be tested in that process, not after the fact.

Practice Takeaways

If you contend assets are undervalued, develop and present admissible valuation evidence and process objections during the sale and confirmation phases. Do not wait until after plan confirmation.
Preserve issues by timely objection and appeal. Failure to object or appeal invites res judicata and forfeiture.
Recognize the § 1144 standard: you must show actual fraudulent intent that procured confirmation—mere disagreement with business judgment or market outcomes will not suffice.
Expect appellate courts to confine review to the bankruptcy record; build that record deliberately.
Where the bankruptcy court has made explicit good-faith and “highest and best” findings, market results will typically defeat later claims of hidden value, especially for IP or other hard-to-value intangibles.

Conclusion

The Third Circuit’s decision in In re Virgin Orbit underscores the formidable hurdles to revoking a confirmed Chapter 11 plan under § 1144. The court reaffirms three anchors of modern bankruptcy practice: (1) revocation demands proof of actual fraudulent intent tied to the procurement of confirmation; (2) market-tested outcomes from a fair, court-approved sale process are the touchstone for value; and (3) finality matters—sale and confirmation orders preclude later collateral attacks, and appellate review is cabined to the record made below. For equity holders and other stakeholders considering post-confirmation challenges premised on alleged undervaluation, Virgin Orbit offers a clear message: absent concrete evidence of intentional deception, disagreement with the market is not fraud.