U.S. Supreme Court Holds That Structured Dismissals Cannot Deviate From The Bankruptcy Code's Priority Scheme

In bankruptcy cases under chapter 11, debtors sometimes opt for a "structured dismissal" when a consensual plan of reorganization or liquidation cannot be reached or conversion to chapter 7 would be too costly. In Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 2017 BL 89680 (U.S. Mar. 27, 2017), the U.S. Supreme Court held that the Bankruptcy Code does not allow bankruptcy courts to approve distributions in structured dismissals which violate the Bankruptcy Code's ordinary priority rules. The Court rejected a Third Circuit decision that had allowed for such structured dismissals in "rare" circumstances. As a result of Jevic, structured dismissals are likely to become more difficult to craft. The Supreme Court's opinion, however, leaves room for the creative use of settlements that provide only for interim (rather than final) distributions deviating from the Bankruptcy Code's priority scheme, and the Court did not directly question the use of settlements that