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ARTICLE · 05 APRIL 2022

Confirmation Denied: Chapter 11 Plan Did Not Satisfy New Value Exception To Absolute Priority Rule Without Market Testing

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When existing interest holders attempt to retain ownership of a chapter 11 debtor after confirmation of a nonconsensual plan of reorganization, the Bankruptcy Code's plan confirmation requirements...

United StatesInsolvency/Bankruptcy/Re-Structuring
Paul Green
Paul Green
Mark Douglas
Mark Douglas
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When existing interest holders attempt to retain ownership of a chapter 11 debtor after confirmation of a nonconsensual plan of reorganization, the Bankruptcy Code's plan confirmation requirements, including well-established rules regarding the classification and treatment of creditor claims and equity interests, can create formidable impediments to their reorganization strategy. In In re Platinum Corral, LLC, 2022 WL 127431 (Bankr. E.D.N.C. Jan. 13, 2022), the U.S. Bankruptcy Court for the Eastern District of North Carolina applied the Bankruptcy Code's "cram-down" confirmation requirements in denying confirmation of a chapter 11 plan under which one of the debtor's existing equity holders would receive 100% of the new equity in the reorganized company in exchange for cancellation of a prepetition unsecured "loan" and a $100,000 cash infusion.

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