Similar to pizza ingredients, artificial impairment of
creditors results in artificial confirmation of the Chapter 11
plan. In Village Green I, GP v. Fannie Mae (In re
Village Green I, GP), the Sixth Circuit affirmed the
decision to vacate the confirmation order a second time. The
debtor had three creditors: its lender, its former lawyer, and its
former accountant. The debtor's only collateral, an
apartment building, partially secured the lender's claim
($3.2MM unsecured). The debtor proposed paying the two minor
claims in full over 60 days while cramming down the lender.
The plan provided for $2 million in principal payments over ten
years while releasing the debtor from its obligation to maintain
and insure the collateral adequately. In the first appeal,
the district court remanded for a determination as to whether the
debtor had proposed the plan in good faith. On remand, the
bankruptcy court found good faith but the district court again
vacated and remanded
