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ARTICLE · 12 NOVEMBER 2018

Horizontal Gifting Upheld In Chapter 11 Plan In The Third Circuit

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

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A noteholder appealed, arguing, among other things, that the plan unfairly discriminated against his class of claims since other unsecured creditors in separate classes would receive 100 percent recovery.

United StatesInsolvency/Bankruptcy/Re-Structuring
Rama Douglas
Rama Douglas
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The Bottom Line

In Hargreaves v. Nuverra Environmental Solutions Inc. (In re Nuverra Environmental Solutions Inc.), 17-1024 (D. Del. Aug. 21, 2018), a Delaware district court upheld a bankruptcy court's ruling that the secured creditors' "gift" of cash and stock to holders of unsecured claims pursuant to a Chapter 11 plan did not violate the confirmation standards for approving a plan under Chapter 11, even though certain classes of unsecured claims (trade and business-related unsecured claims) received larger distributions from the gift than another class of unsecured claims (noteholders). The decision focuses on the permissible effect of "horizontal" gifting whereby the disparate treatment is among separate classes of the same priority level of creditors — here, separately classified general unsecured claims.

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