Legal Question in Bankruptcy in United States
Under 11 U.S.C. section 1129(b) explain when cramdown provisions are and when they are not available to the Chapter 11 debtor.
3 Answers from Attorneys
That is quite the question!
Basically, 1129(b) is always available to the Chapter 11 Debtor. The way the confirmation process works is all the requirements of 1129(a) must be satisfied for a Plan to be confirmed. If all are satisfied except there are one or more dissenting classes of creditors, the Debtor has the option of cramming the Plan down those creditors' throats by invoking 1129(b).
The general requirement is there must be at least one impaired class that accepts the plan. Insider votes do not count towards tabulation when determining the cramdown vote.
Once that hurdle is satisfied, there is further analysis on whether the plan is fair and equitable to creditors who are being crammed down. This requirement is different depending on whether the creditor is a secured creditor or unsecured creditor. See 1129(b)(2) for those requirements.
A good description. There must be an accepting impaired class, and the treatment of the creditor must be fair and equitable. The burden of proof for "fair and equitable" is on the debtor.
Cramdown is generally unavailable whenever the debtor's end game position in terms of ownership of the company would ultimately become better than that of the crammed down creditor, which is known as the "absolute priority rule," in addition to the other conditions mentioned in previous answers. This is sometimes cured through the issuance of a preferred class stock ownership to such creditors.
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