Online retail group QVC recently received bankruptcy court approval of an intercompany settlement and bankruptcy plan that essentially takes all significant value away from parent entity, QVC Group (QVCG) and its preferred shareholders, and gives it to subsidiary QVC Inc (QVCI). The asset transfer allowed QVC to propose, and ultimately confirm, a plan that was overwhelmingly supported by holders of QVCI’s USD 5bn of funded debt (including 100% of holders of revolving credit facility debt and 99.88% (in amount) of holders of QVC notes) – the prime beneficiaries of the transfer.

According to QVC, the stripping of QVCG’s assets that enabled QVCI to restructure its funded debt was done via a settlement agreement that resolved potential intercompany claims and was negotiated in good faith and at arms’ length by disinterested directors. QVCG’s preferred shareholders, however, who got wiped out as a result of the settlement, argued that the 400m settlement amount is an “arbitrary number for which the Debtors offer no explanation but which, coincidentally, is enough to sweep all of the cash available at QVCG.” The shareholders opposed confirmation and approval of the agreement (on which the plan was largely based) on a series of grounds, all of which were overruled by the bankruptcy court.

In this article, the Debtwire legal analyst team discusses how the bankruptcy court justified its approval of the intercompany deal, and related plan confirmation, and why several of the court’s primary justifications for approving the settlement are seemingly at odds with its reasoning for confirming the plan. We also discuss how the court essentially insulated its confirmation ruling from the preferred shareholders’ appeal by denying a stay of the confirmation order.

Complex intercompany transactions lay foundation for asset transfer deal

The QVC debtor group entered Chapter 11 with approximately USD 6.53bn in funded debt as a whole, however not all of the QVC debtors were obligated on that debt.

QVCI was obligated on the funded debt as shown in the table above, however parent QVCG was not. QVCG entered Chapter 11 with no funded debt and approximately (i) USD 195m in cash, (ii) a 62% equity interest in Cornerstone (CBI) – a solvent, operating company with approximately USD 74m in cash and no funded debt, and (iii) approximately USD 1.272bn in face amount of preferred stock.[1] This suggested, at least to QVCG’s preferred equity holders, a potential for a recovery in Chapter 11.

That recovery was made more complicated by the complex corporate structure of the QVC debtors which is at the heart of the disputes between QVCG’s preferred shareholders, on the one side, and the debtors and holders of QVCI’s funded debt (who stood most to gain from the contested intercompany settlement) on the other. Pursuant to the intercompany settlement, QVCI was given a USD 400m allowed general unsecured claim against QVCG, all of QVCG’s distributable cash, (approximately USD 195m), and QVCG’s 62% equity stake in CBI – assets that arguably would have gone to QVCG’s preferred shareholders. In exchange for transferring its assets to QVCI, QVCG obtained (i) releases from all potential claims assertable against it by QVCI, including avoidance claims and tax indemnity claims; (ii) a shift of QVCG’s liability under the deferred tax liability (discussed below) to QVCI, with tax insurance being funded by the proceeds of all QVCIs allowed claims against QVCG; (iii) no obligation to bear shared post-petition administrative costs or costs associated with the Joint Debtor Advisors, and (iv) releases protecting QVCG’s preferred shareholders from potential claims to claw back USD 456m certain of them received in QVCG preferred dividends.

In exchange, QVCI agreed to grant the releases noted above and settle any potential claims that it might have been able to assert against QVCG. According to the debtors’ disclosure statement, those claims included fraudulent transfer, illegal dividend, preference, fiduciary duty, and other claims arising from the following prepetition transactions between QVCG and QVCI:

• Approximately USD 343m in dividends issued by QVCI to QVCG since 2022;
• Hundreds of millions of dollars paid by QVCI to QVCG in connection with a tax sharing agreement (TSA);[2] Under the agreement, which also includes mutual indemnification obligations, QVCI paid QVCG hundreds of millions of dollars on account of state and federal taxes;[3] and
• QVCG’s 2019 payment of USD 50m to QVCI to pay down obligations owing under the revolving credit facility.

In addition to the claims above, the settlement also resolved the potential of a deferred tax liability[4] obligation of QVCG under the TSA, which was a part of the settlement negotiations and, as discussed below, weighed heavily in the court’s ruling. According to the confirmation ruling, QVCI could have asserted an indemnity claim against QVCG for such liability, which QVC’s directors and advisors estimated to range between USD 500m and USD 800m although, under certain circumstances, it could exceed USD 1bn. QVCG’s preferred shareholders argued that none of these potential claims had sufficient merit to justify stripping QVCG of its assets as provided for under the settlement.

The disinterested directors’ negotiations 

Disinterested directors of QVCG, LINTA, and QVCI negotiated the settlement, which forms the basis of the QVC debtors’ Chapter 11 plan, and each entity was advised by separate legal counsel. However, the investigation into potential claims was based on information provided by a shared financial advisor — Evercore — which had been advising QVCI since 2023. In fact, as the court noted in its confirmation ruling (discussed below) Kirkland & Ellis, AlixPartners, and Evercore (Joint Debtor Advisors) “supported the Disinterested Directors’ diligence, information collection efforts, and investigations by serving as intermediaries between the four Governing Bodies and management.”

Preferred shareholders’ legal challenges to the settlement and the plan

Not surprisingly, the ad hoc group of preferred QVCG preferred shareholders, represented by Cleary Gottlieb Steen & Hamilton, Glenn Agre Bergman & Fuentes, and Kane Russell Coleman Logan, opposed confirmation of QVC’s plan and argued that the underlying intercompany settlement should not be approved. They argued that the plan, and the settlement it was based on, improperly transfer all value from QVCG to QVCI while leaving QVCG with no commensurate value in exchange, and that it left QVCG’s preferred shareholders with no value at all. More specifically, they argued that the settlement fails to meet the requirements for approval under Rule 9019 of the Federal Rules of Bankruptcy Procedure, and that the plan is not confirmable because, among other things, it:

• was not proposed in good faith, as required under section 1129(a)(3) of the Bankruptcy Code; [5]
• provides different treatment to QVCG preferred shareholders that are in the same class; and
• was solicited using a disclosure statement that did not contain adequate information with respect to the settlement to allow creditors to cast an informed vote.

With respect to their challenges to the adequacy of the information contained in the disclosure statement, the preferred shareholders argued that the disclosure statement did not explain how the USD 400m settlement amount was calculated, disclose valuations of the individual asserted intercompany claims, explain the strengths and weaknesses of those claims, or state why these alleged claims were never disclosed in prior SEC filings.

The shareholders attacked the settlement by arguing that (i) the alleged potential intercompany claims lack merit, particularly the fraudulent transfer claims given that QVCG and QVCI were allegedly solvent at all relevant times, (ii) the investigation relied on information provided by Evercore, a supposedly conflicted advisor that was already advising other debtor entities, and (iii) the settlement amount (i.e., essentially everything QVCG had to give) was allegedly predetermined before the investigation was completed. The preferred shareholders also challenged the negotiation process because preferred shareholders, the only stakeholders economically harmed by the settlement, were excluded from negotiations. Judge Perez was not troubled by the fact that the QVCG disinterested directors ignored requests from the preferred shareholders’ counsel, Cleary, to discuss the settlement negotiations because he found that those directors believed that Cleary only represented holders of 1%-2% of the preferred stock.

Judge Perez applied the settlement standard applicable to non-insider transactions and approved the deal

In a ruling that exceeded 100 pages and was handed down approximately one month after the conclusion of the confirmation hearing, Judge Alfredo Perez of the US Bankruptcy Court for the Southern District of Texas ruled in favor of the debtors on all counts, confirming QVC’s plan and approving the intercompany settlement.

Settlements are generally favored in bankruptcy because they minimize costly litigation and expedite the administration of a debtor’s estate. Bankruptcy courts typically afford a significant amount of deference to debtors’ business judgment and approve settlements if they are fair and equitable, in the best interest of the debtor’s estate, and not beneath the “lowest point in the range of reasonableness.” However, the standard for approving settlements can be heightened if a settlement concerns insider transactions. Under the heightened standard, courts do not defer to a debtor’s business judgement but instead apply an “entire fairness standard.” Under that more exacting standard, instead of engaging in a “range of reasonableness” inquiry, bankruptcy courts examine whether the process and settlement are fair and whether fiduciary duties were properly taken into consideration. The preferred shareholders argued that because the intercompany settlement agreement between QVCG and QVCI (among others) involves insiders and insider transactions, the heightened standard should apply.

Judge Perez rejected that argument. Although he acknowledged that the parties to the settlement “indisputably” are “insiders” as that term is defined under the Bankruptcy Code, he refused to apply the heightened standard. He found it was not necessary because the debtors’ disinterested directors – who were represented by separate counsel – negotiated and ultimately agreed to the settlement. The fact that the settlement largely was based on information provided by Joint Debtor Advisors did not trouble him because, according to Judge Perez, those advisors did not tell the disinterested directors “what opinions to formulate, or what conclusions to arrive at” with respect to the settlement.

In approving the settlement, Judge Perez referred to the fact that he “conducted a four-day evidentiary hearing where testimony was adduced from eight highly credible Debtor-witnesses, and the parties introduced hundreds of exhibits.”

Judge Perez also found that sufficient information was contained in the disclosure statement regarding the settlement to allow creditors to cast an informed vote. The standard for determining whether a disclosure statement contains adequate information is not the same standard courts employ to defer to a debtor’s business judgment for settlement purposes. However, it is still worth noting that the court concluded that the disclosure contained adequate information about the settlement but needed four days of testimony from eight witnesses and hundreds of additional documents to determine whether to approve it.

Another notable challenge to the settlement that the shareholders raised was the fact that the fraudulent transfer claims had very little merit. To succeed on such a claim, the plaintiff would need to have shown that QVCI was insolvent, rendered insolvent, or left with unreasonably small capital as a result of the transfers made to QVCG. Some of the evidence presented showed otherwise. For example, after the dividends made to QVCG from QVCI in 2022, Duff & Phelps concluded that after QVC’s USD 600m draw on its revolver, and giving effect to the anticipated dividend of USD 800m up to QVCG through the 21 December transfers: (i) the fair value of QVCI’s assets would exceed its debt; (ii) QVCI should be able to pay its debts as they became due; and (iii) QVCI would not have an unreasonably small amount of capital for its businesses. 

Similarly, with respect to fraudulent transfer claims concerning dividends QVCG made to its preferred shareholders, beginning in Q4 2022, QVCG’s board obtained a solvency opinion from Duff & Phelps prior to issuing each QVCG preferred dividend. As Judge Perez acknowledged, in each opinion, Duff & Phelps concluded that after each dividend QVCG paid to its preferred shareholders: (i) immediately prior to giving effect to the proposed dividend, the surplus of QVCG exceeded the amount of the proposed dividend and (ii) after giving effect to the consummation of the proposed dividend, (a) the assets of QVCG exceeded its debts, (b) QVCG should be able to pay its debts, and (c) QVCG would not have an unreasonably small capital for the business in which it is engaged. Nevertheless, Judge Perez reasoned that Duff & Phelps’ opinion could be susceptible to challenge in litigation. Although Evercore – the shared advisor – did not issue a formal solvency opinion, it provided the disinterested directors with an “indicia of insolvency” analysis that Judge Perez found sufficient to make solvency a litigable issue.

Judge Perez also stated throughout his ruling that QVCG (with USD 195m in cash and no funded debt) would not have had the resources to defend against those claims had QVCI asserted them. Judge Perez appeared to find this more persuasive than the issues concerning the insolvency prong of a fraudulent transfer claim.

Judge Perez confirms the plan, denies the shareholders’ stay request

In confirming the plan, Judge Perez found that the plan was proposed in good faith for a number of reasons, including that the disinterested directors engaged in multiple rounds of negotiations over the terms of the settlement. The preferred shareholders made arguments similar to those made at the disclosure statement phase, alleging that QVCG essentially gave everything it had to give in exchange for very little, if any real value, particularly given the weakness of potential fraudulent transfer claims in light of the solvency opinion, and the fact that there was a very low risk of any deferred tax liability. As for the tax liability, Judge Perez found that there was a low-probability but extremely high-consequence risk associated with the potential liability, and therefore it should be heavily factored into the settlement.

As for the plan having been proposed in good faith, Judge Perez also found that even though preferred shareholders received no cash distributions under the plan, they received releases from potential claims, including claims to claw back as fraudulent transfers approximately USD 465m in dividends paid between 2019 and 2025. According to Judge Perez, these releases were a substantial “get” for the shareholders. However, the preferred shareholders also argued that the plan could not be confirmed because all preferred shareholders, which were in the same class, were not treated equally. They explained that not all preferred shareholders received distributions, and therefore the releases from fraudulent transfer claims that Judge Lopez asserted were a valuable “get” for shareholders under the agreement, were worthless to shareholders that did not receive dividends. As such, they argued that the plan gave value to preferred shareholders who received prepetition dividends but no value to those who did not – thereby treating shareholders in the same class differently in violation of the Bankruptcy Code.

Judge Perez disagreed and found that all QVCG preferred shareholders were treated equally. Although he found that the releases were valuable for purposes of the settlement, he essentially found that their value was not valuable enough for purposes of the equal treatment analysis for confirmation purposes. He explained that with respect to the Bankruptcy Code’s requirement that all creditors within the same class receive equal treatment under the plan, the analysis turns more on “payment of value and the tendering of consideration.”[6] In this context, he explained, “a release does not create any affirmative right to payment (i.e. value) for the [p]referred [s]hareholders in the same way.” He concluded, therefore, that “From this viewpoint, it becomes clear that current Preferred Shareholders who received QVCG Preferred Dividends do not receive different “payments of value” under the Intercompany Settlement than those current Holders who did not receive any such dividends.” In short, although the releases constituted value for purposes of assessing the fairness of the settlement, they did not constitute value in terms of plan distributions when considering whether QVCG’s preferred shareholders within the same class received equal treatment under the plan.

A day after Judge Perez issued his confirmation ruling, the preferred shareholders filed an appeal and requested that Judge Perez stay his confirmation order while their appeal is pending. Among other things, they argued that a stay is necessary because once the plan becomes effective, QVCG’s cash will be transferred to QVCI, its interest in CBI will be transferred, and the shareholders’ preferred stock will be cancelled. They argued that once these transactions occur, their appeal will run a high risk of being dismissed on the grounds that it is equitably moot. Judge Perez denied the stay request explaining that a stay pending appeal generally requires showing a substantial likelihood of success on appeal or, at minimum, a serious legal question coupled with favorable equities. Judge Perez ruled that the preferred shareholders failed to meet that standard.

This ruling puts the preferred shareholders at a substantial disadvantage with their appeal because the debtors can now argue that the appeal should be dismissed on equitable mootness grounds as the plan will have been substantially consummated before the appellate court even considers the substantive issues on appeal.[7]

Intercompany settlements in Chapter 11 as an alternative to LMEs

Among the biggest takeaways of the confirmation ruling is that Judge Perez has made clear that, by putting in place disinterested directors who are advised by separate counsel (even if they rely on information compiled by shared advisors), a substantial shift in assets can be accomplished with relative ease under the form of an intercompany settlement in Chapter 11. As such, at least in Texas, the case stands as a model for yet another mechanism corporate groups may employ to restructure their debt by transferring assets between affiliated entities to satisfy certain creditors.

Under the right set of circumstances, corporate groups can retain independent directors who are advised by separate counsel to negotiate settlements that shift assets based on the mere prospect of intercompany claims. Those disinterested directors can even rely on a shared set of advisors for purposes of assessing the value of potential claims. For example, QVCG did not appear to have retained independent tax of financial advisors in connection with the settlement negotiations. Nonetheless, as Judge Perez has shown, settlements negotiated under these terms can avoid scrutiny under the more exacting “entire fairness standard” that is often applied to settlements involving insider transactions.

Once approved and implemented under a confirmed plan, the company can essentially enjoy greater protection on appeal if the same court who approved the plan and settlement denies a stay of its own confirmation order while the appeal is pending. Once a stay of the confirmation is denied and the company implements the settlement agreement provided for under the plan, the deal is much more likely to withstand an appeal given the application of the equitable mootness doctrine.

It is important to note that Judge Perez likely would have been more sympathetic if opposition to the settlement and plan came from a group of creditors, as opposed to a shareholder group. In one instance, for example, he distinguished QVC’s case from precedent relied on by the shareholders for their argument that heightened scrutiny should apply to approval of the settlement. Judge Perez said in the other case, an overwhelming majority of creditors opposed the settlement but in QVC’s case, the overwhelming majority of creditors supported the deal and the deal was only opposed by shareholders. In short, he found that the settlement was in the best interests of creditors. There was no such finding with respect to the interests of shareholders.

 

 

Prior to joining Debtwire, Sara was a law clerk to two judges in the United States Bankruptcy Court, S.D.N.Y. and practiced in the Financial Restructuring Group at Clifford Chance, where she represented financial institutions (as secured and unsecured creditors, defendants in adversary proceedings, and participants in DIP financings) in high-profile restructurings. She also represented foreign representatives in Chapter 15 cross-border cases.

This report should not be relied upon to make investment decisions. Furthermore, this report is not intended and should not be construed as legal advice. ION Analytics does not provide any legal advice, and clients should consult with their own legal counsel for matters requiring legal advice. All information is sourced from either the public domain, ION Analytics data or intelligence, and ION Analytics cannot and does not verify or guarantee the adequacy, accuracy or completeness of any source document. No representation is made that it is current, complete or accurate. The information herein is not intended to be used as a basis for investing and does not constitute an offer to buy or sell any securities or investment strategy. The information herein is for informational purposes only and ION Analytics accepts no liability whatsoever for any direct or consequential loss arising from any use of the information contained herein.

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[1] According to QVCG’s Annual Report (Form 10-K) (15 April 2026), CBI generated approximately USD 937min revenue in 2025 and is projected annually to generate USD 30-42m of OIBDA through 2029. CBI housed the operating brands Frontgate, Ballard Designs, Garnet Hill, and Grandin Road.

[2] QVCG and CVCI are parties to the TSA which concerns the allocation of consolidated, combined, and unitary taxes and tax benefits among members of the QVC group. Under the TSA, QVC agreed to pay QVCG an amount equal to the hypothetical separate consolidated income tax liability QVC and its subsidiaries’ (the QVC TSA Group), as “reasonably determined” by QVCG assuming the highest corporate tax rate in effect for the applicable tax period. Under the agreement, if the QVC TSA Group is entitled to tax credits, net operating loss, or capital loss deductions under a hypothetical separate consolidated tax group calculation, the amount owed to QVCG would be reduced in an amount equal to the net tax benefit obtained by the joint consolidated QVCG tax return, which QVCG, in its “reasonable judgment,” may determine. According to the disclosure statement, there is no benefit available to the QVC TSA Group unless it would have a standalone tax liability.

[3] According to the disclosure statement, QVC paid USD 251.4m, USD 168.9m, USD 226.48m, USD 299.5m, USD 200m, USD 105.5m, and approximately USD 85.9m on account of federal and state taxes in 2018, 2019, 2020, 2021, 2022, 2023, and 2024 respectively, under the TSA.

[4] The QVC consolidated tax group deducted interest on LINTA exchangeable notes using an IRS tax calculation that produced an effective interest rate of approximately 9%, even though LINTA actually paid bondholders only approximately 4% cash interest. That difference generated tax deductions that reduced taxes over several years, and effectively deferring tax liability into the future.

[5] The preferred shareholders also argued that the plan (i) fails to meet the best interests of creditors test set forth in section 1129(a)(7) of the Bankruptcy Code, which requires that creditors within an impaired class that do not vote to accept the plan must receive at least as much as they would have received if the debtor was liquidated under Chapter 7, and (ii) violates the absolute priority rule set forth in section 1129(b)(2)(B) of the Bankruptcy Code because QVCI is receiving potentially more value than the face amount of its allowed USD 400m settlement claim while the preferred shareholders receive nothing under the plan on account of their interests. Under the absolute priority rule, senior classes cannot receive more than a 100% recovery on their claims, as such excess amounts should be distributed to junior dissenting creditors.

[6] Emphasis in original.

[7] Under the equitable mootness doctrine, if a plan has been substantially consummated, an appeal of the confirmation order is deemed equitably moot and consequently must be dismissed unless the appellate court can still order some effective relief that will neither affect the debtor’s emergence from bankruptcy as a reorganized entity nor unravel intricate transactions (such as a public issuance of common stock) and thereby create an unmanageable or uncontrollable situation for the bankruptcy court. To avoid a dismissal on equitable mootness grounds, if the plan has been substantially consummated, an appellant also must (i) prove that it pursued with diligence all available remedies to obtain a stay of the confirmation order and (ii) ensure that all parties who would be adversely affected by the modification have notice of the appeal and an opportunity to participate in the proceedings.