Enforcement of the Single Satisfaction Rule in Bankruptcy Preference Recoveries Under 11 U.S.C. § 550

Introduction

In Ad Hoc Group of Senior Secured Noteholders; DIP Lenders; Wilmington Savings Fund Society, FSB v. Delaware Trust Company (No. 23-20557, 5th Cir. May 30, 2025), the Fifth Circuit addressed whether a Chapter 11 plan provision permitting a hypothetical valuation of avoidance actions could override the Bankruptcy Code’s “single satisfaction” rule in preference recoveries under 11 U.S.C. §§ 550(a) and (d). The appellants—secured noteholders and DIP lenders in Sanchez Energy Corporation’s bankruptcy—contended that the bankruptcy court erred by awarding unsecured creditors equity based on both (1) the return of avoidable pre-petition liens and (2) a separate “value” for those liens, thus effectuating a double recovery. The court of appeals vacated the plan-confirmation judgment and remanded, reaffirming that § 550 permits either recovery of the transferred property (here, liens) or its value, but not both.

Background and Key Issues

Debtor: Sanchez Energy Corporation, a Texas-based oil & gas producer, filed for Chapter 11 in August 2019 amid a disastrous market downturn exacerbated by COVID-19.
Secured Creditors: Held $500 million in secured notes with deeds of trust on nearly all assets, including high-value HHK oil & gas leases.
DIP Financing: Secured creditors extended a $200 million superpriority DIP facility, approved reluctantly by the bankruptcy court in January 2020.
Plan Structure: The confirmed plan (April 2020) released all pre-petition and DIP liens in exchange for equity. Allocation of 80% of new-entity equity hinged on a three-phase “Lien-Related Litigation” to determine: (1) DIP lien validity; (2) pre-petition lien avoidability; (3) valuation of preserved avoidance causes of action.
Appeal Issue: Whether the plan’s hypothetical valuation process could lawfully award unsecured creditors both the return of avoided liens and a separate equity-value “recovery” in violation of § 550(d)’s single satisfaction rule.

Summary of the Judgment

The Fifth Circuit concluded that (1) the Chapter 11 plan—properly interpreted against the backdrop of §§ 547–550—did not authorize a valuation detached from the Code’s limitations; (2) § 550(a) uses “or” disjunctively, allowing recovery of the transferred property or its value, not both; and (3) § 550(d) bars double recovery. Because the secured creditors returned their liens under the plan, the estate had already “recovered” the transferred property. Any award of “value” on top of that contravened § 550(d). The court held that the DIP lenders’ superpriority liens exceeded the reorganized enterprise value ($85 million), entitling them to 100% of the equity. The bankruptcy court’s contrary valuation and equity split (approximately 30% to secured parties, 70% to unsecured) were vacated and the case remanded for proceedings consistent with the single-satisfaction principle.

Analysis

1. Precedents Cited

§ 550(a) & (d) Text & Rule of Construction: Section 550(a) permits recovery of “the property transferred, or … the value of such property.” Section 550(d) limits recovery to “only a single satisfaction.” Section 102(5) deems “or” non-exclusive unless context dictates otherwise.
In re DeBerry (5th Cir. 2019): Held that “[p]roperty that has already been returned cannot be ‘recovered’ in any meaningful sense.”
In re Trout (10th Cir. 2010): Clarified that the trustee may recover the perfected security interest (the added lien) or its monetary value, but not both—since § 550(d) permits only one recovery.
Collier on Bankruptcy: Commentary emphasizes that § 550(a)’s alternatives are mutually exclusive, and § 550(d) precludes double counting.

2. Legal Reasoning

The court began with plan interpretation under Texas law—language must be given its plain monetary meaning, and the plan did not define “value” in a way that displaces § 550. The plan’s repeated recitals preserving the secured parties’ Code-based defenses demonstrated that hypothetical valuation could not ignore the single-satisfaction requirement. Contextual reading of §§ 550(a) and (d) confirmed that “or” is disjunctive in § 550(a), since awarding both transferred liens and their value would be irreconcilable with § 550(d). The bankruptcy court’s contrary view—treating an avoided, depreciated lien as “worthless” and then valuing it anyway—was rejected as contrary to the Code’s text, structure, and purpose.

3. Impact on Future Cases

Reaffirms that Chapter 11 plans cannot contract around the Bankruptcy Code’s mandatory single-recovery rule for preference actions.
Clarifies that “valuation” provisions in plans must respect §§ 550(a)/(d): if a transferred lien is returned, no separate “value” award can follow.
Alerts debtors and creditors that multi-phase litigation mechanisms must incorporate—and cannot supersede—statutory preference recovery limits.
Strengthens trustee and creditor defenses by emphasizing consultation of §§ 547–550 when drafting confirmation plans and DIP orders.

Complex Concepts Simplified

Preference Action (§ 547): A trustee/debtor in possession may “avoid” transfers made shortly before bankruptcy that unfairly benefit one creditor over others.
Avoidable Transfer Recovery (§ 550): Once avoided, the estate may “recover” either the actual property/transferred interest (e.g., returned lien) or its monetary value—but not both.
Superpriority DIP Lien: A post-petition financing lien that ranks ahead of most other claims, enabling continued debtor operations but creating potential conflicts with pre-petition secured creditors.
Single Satisfaction Rule: § 550(d) ensures that a creditor does not pay twice—once in returned property and once in cash value.

Conclusion

The Fifth Circuit’s decision in Sr Secured Noteholders v. Delaware Trust Co. underscores that bankruptcy plans cannot undermine the statutory scheme for preference recoveries. Section 550(a) and its mandatory single-satisfaction rule in § 550(d) govern in-kind or monetary recovery, and plans must be interpreted consistently with these provisions. By vacating the equity-allocation judgment and remanding with instructions to recognize the DIP lenders’ superpriority lien interest, the court reestablished the primacy of the Bankruptcy Code over creative plan valuations. Going forward, practitioners must design DIP and confirmation documents that honor §§ 547–550 rather than seek to sidestep their clear limits on creditor recoveries.