- No. 12-10271 (5th Cir. February 26, 2013).
- Joining with the Ninth Circuit’s conclusion in Matter of L&J Anaheim Associates, 995 F.2d 940 (9th Cir. 1993), the Fifth Circuit held that the Bankruptcy Code does not distinguish between discretionary (i.e., “artificial”) and economically driven impairment, and therefore a plan that artificially impaired unsecured creditors by paying them in full over three months (when the debtor had the cash to pay them in full on the Effective Date) did not per se violate the good faith requirement of § 1129(a)(3) of the Bankruptcy Code.
- Procedural context:
- Appeal of the bankruptcy court’s order confirming a chapter 11 cramdown plan over the objection of the oversecured senior lender. Direct appeal to the Fifth Circuit from the US Bankruptcy Court for the Northern District of Texas.
- The slightly oversecured senior secured creditor of a single asset real estate debtor objected to confirmation of the debtor’s plan, inter alia, on the grounds that the plan minimally impaired the class of unsecured prepetition trade creditors, collectively owed approximately $60,000, by paying them in full with interest over a period of three months. The Fifth Circuit rejected the secured creditor’s argument that an artificially-impaired class of creditors could not satisfy the voting requirements of § 1129(a)(10) or the good faith requirement of § 1129(a)(3), concluding instead that “a plan proponent’s motives and methods for achieving compliance with the voting requirement of § 1129(a)(10) must be scrutinized, if at all, under the rubric of” the good faith requirement of § 1129(a)(3). Where a plan is proposed with the “legitimate and honest purpose to reorganize,” the good faith requirement is satisfied.
- Higginbotham, Clement, and Haynes.
3081 in the system
0 Being Processed