Third Circuit Approves Structured Dismissal Of Chapter 11 Case That Includes Settlement Deviating From Bankruptcy Code's Priority Scheme

A "structured dismissal" of a chapter 11 case following a sale of substantially all of the debtor's assets has become increasingly common as a way to minimize costs and maximize creditor recoveries. However, only a handful of rulings have been issued on the subject, perhaps because bankruptcy and appellate courts are unclear as to whether the Bankruptcy Code authorizes the remedy.

The U.S. Court of Appeals for the Third Circuit recently weighed in on this issue in Official Committee of Unsecured Creditors v. CIT Group/Business Credit Inc. (In re Jevic Holding Corp.), 2015 BL 160363 (3d Cir. May 21, 2015). The court ruled that "absent a showing that a structured dismissal has been contrived to evade the procedural protections and safeguards of the plan confirmation or conversion processes, a bankruptcy court has discretion to order such a disposition." The court also held that "bankruptcy courts may approve settlements that deviate from the priority scheme of [the