business reorganizations third edition · isbn: 978-1-4224-7729-8 looseleaf isbn: 978-1-4224-8165-3...
TRANSCRIPT
BUSINESSREORGANIZATIONS
Third Edition
LexisNexis Law School PublishingAdvisory Board
Paul Caron
Professor of Law
Pepperdine University School of Law
Herzog Summer Visiting Professor in Taxation
University of San Diego School of Law
Olympia Duhart
Professor of Law and Director of Lawyering Skills & Values Program
Nova Southeastern University Shepard Broad Law School
Samuel Estreicher
Dwight D. Opperman Professor of Law
Director, Center for Labor and Employment Law
NYU School of Law
Steve I. Friedland
Professor of Law and Senior Scholar
Elon University School of Law
Joan Heminway
College of Law Distinguished Professor of Law
University of Tennessee College of Law
Edward Imwinkelried
Edward L. Barrett, Jr. Professor of Law
UC Davis School of Law
Paul Marcus
Haynes Professor of Law
William and Mary Law School
John Sprankling
Distinguished Professor of Law
McGeorge School of Law
Melissa Weresh
Director of Legal Writing and Professor of Law
Drake University Law School
BUSINESSREORGANIZATIONS
Third Edition
Michael A. GerberProfessor of Law
Brooklyn Law School
George W. KuneyLindsay Young Distinguished Professor of Law and
Director of the Clayton Center for Entrepreneurial Law
The University of Tennessee College of Law
ISBN: 978-1-4224-7729-8
Looseleaf ISBN: 978-1-4224-8165-3
eBook ISBN: 978-1-5791-1670-5
Library of Congress Cataloging-in-Publication Data
Gerber, Michael A., author.
Business reorganizations / Michael A. Gerber, Professor of Law, Brooklyn Law School; George W. Kuney, Lindsay
Young Distinguished Professor of Law, The University of Tennessee College of Law. -- Third edition.
pages cm.
Includes index.
ISBN 978-1-4224-7729-8
1. Corporate reorganizations--United States. 2. Bankruptcy--United States. 3. United States. Bankruptcy. Chapter 11,
Reorganization. I. Kuney, George W., author. II. Title.
KF1544.G369 2013
346.73’06626--dc23
2013035289
This publication is designed to provide authoritative information in regard to the subject matter covered. It is soldwith the understanding that the publisher is not engaged in rendering legal, accounting, or other professionalservices. If legal advice or other expert assistance is required, the services of a competent professional shouldbe sought.
LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used underlicense. Matthew Bender and the Matthew Bender Flame Design are registered trademarks of Matthew BenderProperties Inc.
Copyright © 2013 Matthew Bender & Company, Inc., a member of LexisNexis. All Rights Reserved.
No copyright is claimed by LexisNexis or Matthew Bender & Company, Inc., in the text of statutes, regulations,and excerpts from court opinions quoted within this work. Permission to copy material may be licensed for a feefrom the Copyright Clearance Center, 222 Rosewood Drive, Danvers, Mass. 01923, telephone (978) 750-8400.
NOTE TO USERS
To ensure that you are using the latest materials available in this area, please be
sure to periodically check the LexisNexis Law School web site for downloadable
updates and supplements at www.lexisnexis.com/lawschool.
Editorial Offices
121 Chanlon Rd., New Providence, NJ 07974 (908) 464-6800
201 Mission St., San Francisco, CA 94105-1831 (415) 908-3200
www.lexisnexis.com
(2013–Pub.078)
About the Authors
Michael Gerber is a Professor Law, former Interim Dean, and Director of the Business Boot
Camp program at Brooklyn Law School. For many years he also served as the Associate Dean for
Development. He writes and lectures on corporate governance in bankruptcy, bankruptcy ethics,
the treatment of intellectual property interests in bankruptcy, dot-com bankruptcies, international
and comparative insolvency law, and other business bankruptcy and reorganization topics. He is a
contributing author of Collier on Bankruptcy, the leading treatise on bankruptcy law. At Brooklyn
Law School, he helps lead the annual Barry Zaretsky Roundtable, which focuses on cutting-edge
bankruptcy issues, and he is the director of the law school’s foreign summer study programs in
Beijing and Bologna. He is a member of the School’s Dennis J. Block Center for the Study of
International Business Law and the School’s Center for the Study of Business Law and Regulation.
Prior to joining the faculty, Professor Gerber practiced law at Proskauer Rose. He has twice served
on the Merit Selection Panel for a Bankruptcy Judge in the Eastern District of New York and on the
Committee on Bankruptcy and Corporate Reorganization of the New York City Bar. He is a
member of the Federal Bar Council, the New York City Bar Association, and the American Bar
Association.
George W. Kuney is the Lindsay Young Distinguished Professor of Law and Director of the
Clayton Center for Entrepreneurial Law at The University of Tennessee College of Law in
Knoxville, Tennessee. He holds a J.D. from the University of California, Hastings College of the
Law, an M.B.A. from The University of San Diego, and a B.A. in economics from the University
of California, Santa Cruz. Before joining the UT faculty in 2000, he was a partner in the Allen
Matkins firm’s San Diego office. Previously, he practiced with the Howard Rice and Morrison &
Foerster firms in his hometown of San Francisco, doing litigation and transactional work largely in
the context of business restructuring and insolvency. He teaches business law courses, including:
Business Associations, Contracts, Contract Drafting, Commercial Law, Consumer Bankruptcy,
Debtor-Creditor, Mergers and Acquisitions, Representing Enterprises, and Workouts and
Reorganizations. Kuney writes books and articles about business, contracts, commercial law, and
insolvency-related topics; advises clients nationwide regarding bankruptcy, restructuring,
reorganization, and related subjects; and conducts training seminars for law firm associates and
summer associates regarding business law and transactional drafting.
iii
Acknowledgements
The authors thank Wendy G. Patrick, University of Tennessee College of Law Class of
2013, for her extensive and detail-oriented assistance with the preparation of this book.
v
TABLE OF CONTENTS
Chapter 1 INTRODUCTION: AN OVERVIEW OF CHAPTER 11 . . . 1
§ 1.01 MEET YOUR CLIENT: THE GREAT AMPHYDYNAMICS BUSINESS
DISASTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
§ 1.02 COUNSELING YOUR CLIENT: ALTERNATIVES FOR FINANCIALLY
BELEAGUERED DEBTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
[A] Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
[B] Out-of-Court Restructurings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
§ 1.03 BUSINESS REORGANIZATIONS: THE CONTOURS OF CHAPTER 11
AND ITS PURPOSE AND PLACE IN THE BANKRUPTCY CODE . . . . 6
[A] The Theory of Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
[B] Statutory Road Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
§ 1.04 COMMENCEMENT OF A CHAPTER 11 CASE: PRE-FILING
CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
[A] Form and Content of the Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
[B] Where to File: Venue of Chapter 11 Cases . . . . . . . . . . . . . . . . . . . . . 12
[C] When to File; What to Pack . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
§ 1.05 THE EARLY DAYS OF A CHAPTER 11 CASE . . . . . . . . . . . . . . . . . . 14
[A] Property of the Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
[B] The Automatic Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
[C] The Bankruptcy Court and the United States Trustee System . . . . . . . . 16
[D] Operation and Control of the Business in Chapter 11: Trustees and Debtors
in Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
[E] Examiners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
[F] Meetings of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
[G] Appointment & Role of Committees in Chapter 11 Cases . . . . . . . . . . . 24
[H] Role of the Securities and Exchange Commission . . . . . . . . . . . . . . . . 25
§ 1.06 THE MIDDLE PHASE OF A CHAPTER 11 CASE . . . . . . . . . . . . . . . . 27
§ 1.07 THE PLAN PHASE OF A CHAPTER 11 CASE . . . . . . . . . . . . . . . . . . 27
§ 1.08 ELIGIBILITY TO SEEK RELIEF IN CHAPTER 11 . . . . . . . . . . . . . . . 29
Toibb v. Radloff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
In re Victory Construction Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Nester v. Gateway Access Solutions, Inc. (In re Gateway
Access Solutions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Offıcial Comm. of Unsecured Creditors v. Nucor Corp. (In re SGL Carbon
Corp.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
In re General Growth Properties, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 70
vii
§ 1.09 WHAT PRICE GLORY: DETERMINING THE VALUE OF THE
ENTERPRISE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
[A] Determining the Present Value of a Stream of Payments . . . . . . . . . . . . 88
Problem: How Much is Amphydynamics Worth? . . . . . . . . . . . . . . 91
[B] Determining Book Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
[C] Liquidation Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
[D] Going Concern Valuation: Determining Reorganization Value by
Predicting the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
[1] Capitalization of Future Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 94
[2] Discounted Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
In re Cellular Information Systems, Inc. . . . . . . . . . . . . . . . . . . . 96
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Chapter 2 FIRST THINGS FIRST: A LOOK AT CHAPTER 11
“FIRST-DAY ORDERS” . . . . . . . . . . . . . . . . . . . . . . . . . 107
§ 2.01 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
§ 2.02 AUTHORIZATION TO RETAIN PROFESSIONALS . . . . . . . . . . . . . 108
[A] Section 327(A): Professionals Must Be “Disinterested” . . . . . . . . . . . 108
Problem 2.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
In re The Leslie Fay Companies . . . . . . . . . . . . . . . . . . . . . . . . . . 109
In re Marvel Entertainment Group, Inc. . . . . . . . . . . . . . . . . . . . . 124
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
[B] The Rule 6003 21-Day Cooling-Off Period . . . . . . . . . . . . . . . . . . . . 133
In re First NLC Financial Services, LLC . . . . . . . . . . . . . . . . . . . . 133
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
§ 2.03 AUTHORIZATION TO PAY “CRITICAL VENDORS” . . . . . . . . . . . . 136
Problem 2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Sportfame of Ohio, Inc. v. Wilson Sporting Goods, Co.
(In re Sportfame of Ohio, Inc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
In re Kmart Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
§ 2.04 AUTHORIZATION TO USE CASH COLLATERAL . . . . . . . . . . . . . . 150
Introduction & Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
In re Dynaco Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
§ 2.05 COMMITTEES IN CHAPTER 11 CASES . . . . . . . . . . . . . . . . . . . . . . 161
Problem 2.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
In re America West Airlines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Problem 2.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
TABLE OF CONTENTS
viii
In re Northwest Airlines Corporation (Northwest I) . . . . . . . . . . . . . . 177
In re Northwest Airlines Corp. (Northwest II) . . . . . . . . . . . . . . . . . . 180
Note on Rule 2019 and the Aftermath of Northwest . . . . . . . . . . . . . . 184
Chapter 3 THE AUTOMATIC STAY . . . . . . . . . . . . . . . . . . . . . . . 187
§ 3.01 INTRODUCTION; BASIC FEATURES OF THE AUTOMATIC
STAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Problem 3.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Problem 3.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Floyd Weed v. Fleet Tire Mart . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
§ 3.02 ACTS AGAINST PROPERTY OF THE ESTATE . . . . . . . . . . . . . . . . 193
Problem 3.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
Citizens Bank of Maryland v. Strumpf . . . . . . . . . . . . . . . . . . . . . . . 196
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
§ 3.03 STAYS OF ACTIONS AGAINST NON-DEBTORS . . . . . . . . . . . . . . 200
[A] Direct Actions Against Insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Problem 3.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
A.H. Robins Co. v. Piccinin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
[B] Suits Against Co-Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
Problem 3.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
F.T.L., Inc. v. Crestar Bank (In re F.T.L., Inc.) . . . . . . . . . . . . . . . 211
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
[C] Suits Against Key Employees of the Debtor . . . . . . . . . . . . . . . . . . . 215
Problem 3.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
[D] Suits Against Partners of the Debtor . . . . . . . . . . . . . . . . . . . . . . . . . 218
§ 3.04 EXCEPTIONS TO THE AUTOMATIC STAY . . . . . . . . . . . . . . . . . . 220
[A] The Governmental, Police, and Regulatory Power Exception . . . . . . . 220
[1] In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
Problem 3.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
NLRB v. Evans Plumbing Co. . . . . . . . . . . . . . . . . . . . . . . . . . . 221
[2] What Is an Action to Enforce a Money Judgment? . . . . . . . . . . . . . 223
[B] Actions Brought in Bankruptcy Court . . . . . . . . . . . . . . . . . . . . . . . . 228
[C] Effect of the Automatic Stay on States . . . . . . . . . . . . . . . . . . . . . . . 229
§ 3.05 WHEN IS A CLAIM A CLAIM? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
Problem 3.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
Grady v. A.H. Robins Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
Notes and Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
§ 3.06 RELIEF FROM THE AUTOMATIC STAY: INTRODUCTION . . . . . . 238
§ 3.07 THE CONCEPT OF ADEQUATE PROTECTION . . . . . . . . . . . . . . . . 239
[A] Periodic Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
TABLE OF CONTENTS
ix
Problem 3.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
In re Bermec Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
[B] Replacement Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
Problem 3.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
In re American Kitchen Foods, Inc. . . . . . . . . . . . . . . . . . . . . . . . 245
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
[C] Other Methods of Providing Adequate Protection: The Equity Cushion/
Opportunity Costs/Indubitable Equivalent Concepts . . . . . . . . . . . . . . 254
Problem 3.11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
In re Alyucan Interstate Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
Problem 3.12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
United Savings Ass’n v. Timbers of Inwood
Forest Associations, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
[D] Periodic Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
[E] When Adequate Protection Turns Out to Be Inadequate . . . . . . . . . . . 275
In re Callister . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284
[F] Review: Fun With Adequate Protection . . . . . . . . . . . . . . . . . . . . . . . 286
§ 3.08 RELIEF FROM THE STAY: DEBTOR’S LACK OF EQUITY IN, AND
NEED FOR, THE PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
Problem 3.13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
In re Anchorage Boat Sales, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
Chapter 4 MANAGEMENT OF THE BUSINESS . . . . . . . . . . . . . . 291
§ 4.01 INTRODUCTION AND HISTORICAL NOTE . . . . . . . . . . . . . . . . . . 291
Back to the Future: The Evolution of Trustees and Debtors in Possession
Practice Under the Former Bankruptcy Act, 1938 to 1979 . . . . . . . . . 291
The Bankruptcy Reform Act of 1978 . . . . . . . . . . . . . . . . . . . . . . . . 299
Back to the Present: A Single Reorganization Chapter and Trustees
Only on Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
§ 4.02 GROUNDS FOR APPOINTMENT AND ELECTION OF TRUSTEES . 302
Tradex Corporation v. Morse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
In re Ionosphere Clubs, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311
Notes on the Appointment of Chapter 11 Trustees . . . . . . . . . . . . . . . 316
§ 4.03 APPOINTMENT OF EXAMINERS . . . . . . . . . . . . . . . . . . . . . . . . . . 322
§ 4.04 OTHER APPROACHES TO CHANGING AND STRENGTHENING
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324
Appointment of “Responsible Persons” and “Chief Restructuring
TABLE OF CONTENTS
x
Officers” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
§ 4.05 RIGHT OF STOCKHOLDERS TO MEET AND ELECT DIRECTORS
WHEN DEBTOR REMAINS IN POSSESSION . . . . . . . . . . . . . . . . . . 327
Problem 4.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
In re Johns Manville Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336
In re Lifeguard Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339
§ 4.06 POWERS AND DUTIES OF TRUSTEES AND DEBTORS IN
POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
[A] In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
[1] Duties of Trustees and Debtors in Possession . . . . . . . . . . . . . . . . . 347
[2] Rights and Powers of Trustees and Debtors in Possession . . . . . . . . 349
[B] Authority to Operate and Manage the Business . . . . . . . . . . . . . . . . . 349
Commodity Futures Trading Commission v. Weintraub . . . . . . . . . 349
[C] Limitations on the Power to Manage the Business . . . . . . . . . . . . . . . 354
[1] Ordinary Course of Business Transactions . . . . . . . . . . . . . . . . . . . 355
In re Curlew Valley Associates . . . . . . . . . . . . . . . . . . . . . . . . . 355
In re UNR Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370
[2] Transactions Outside the Ordinary Course of Business . . . . . . . . . . 371
Medical Malpractice Insurance Association v. Hirsch
(In re Lavigne) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
[D] The Duty of Care and the Business Judgment Rule in Chapter 11 . . . . 377
[E] The Duty of Loyalty in Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . 380
[1] The Trustee’s Duty of Loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . . 380
[2] The Debtor in Possession’s Duty of Loyalty . . . . . . . . . . . . . . . . . . 383
[3] Scope of Fiduciary Duties of Officers and Directors of Financially
Troubled Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385
[a] Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications
Corp.: The Discovery of the “Zone of Insolvency” . . . . . . . . . . . 386
[b] Production Resources Group L.L.C. v. NCT Group, Inc.: Credit
Lyonnais Revisited and Restrained . . . . . . . . . . . . . . . . . . . . . . . 388
[c] The Rise and Fall of the Deeping Insolvency Theory . . . . . . . . . . 391
[d] Trenwick America Litigation Trust v. Ernst & Young LLP: Deepening
Insolvency Meets the Business Judgment Rule . . . . . . . . . . . . . . 392
[e] North American Catholic Educational Programming Foundation, Inc.,
v. Gheewalla: A Derivative Claim Is Still a Derivative Claim . . . . 395
[F] Reprise: Living with Competing Interests in Chapter 11 . . . . . . . . . . . 397
TABLE OF CONTENTS
xi
Chapter 5 FINANCING THE DEBTOR’S OPERATIONS IN
CHAPTER 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
§ 5.01 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
Problem 5.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
§ 5.02 ADMINISTRATIVE PRIORITY TREATMENT — SECTIONS 364(A), (B);
503(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402
In re Ockerlund Construction Co. . . . . . . . . . . . . . . . . . . . . . . . . . . 405
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410
§ 5.03 CREDIT WITH SUPERPRIORITY OR SECURED STATUS — CODE
§ 364(c), (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411
[A] Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411
[B] Superpriorities and Non-Priming Liens — Code § 364(c) . . . . . . . . . . 412
Problem 5.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413
In re Ames Department Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . . 415
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
[C] Cross-Collateralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
Problem 5.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
Shapiro v. Saybrook Manufacturing Co.
(In re Saybrook Manufacturing Co.) . . . . . . . . . . . . . . . . . . . . . . . 427
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433
[D] Subordination of Existing Liens; Code § 364(d) . . . . . . . . . . . . . . . . . 441
Resolution Trust Corp. v. Swedeland Development Group, Inc. (In re
Swedeland Development Group, Inc.) . . . . . . . . . . . . . . . . . . . . . . 441
Note on Priming Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446
Chapter 6 PREPLAN SALE OF THE DEBTOR’S BUSINESS . . . . . 449
§ 6.01 SALES OF SUBSTANTIALLY ALL OF THE DEBTOR’S ASSETS . . . 449
Problem 6.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451
In re The Lionel Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462
Indiana State Police Pension Trust v. Chrysler, LLC . . . . . . . . . . . . . 466
In re On-Site Sourcing, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475
§ 6.02 THE POWER TO SELL FREE AND CLEAR OF CLAIMS AND
INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486
[A] Conditions for Sale Free and Clear . . . . . . . . . . . . . . . . . . . . . . . . . . 487
[1] Code §§ 363(f)(1), (2), (3) — Unsurprising Conditions Allowing
Sale Free and Clear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487
[2] Code § 363(f)(4) — Sale When the Interest Is in Bona Fide Dispute . 488
[3] Code § 363(f)(5) — The Standard That Could Have Swallowed the
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488
Indiana State Police Pension Trust v. Chrysler, LLC
TABLE OF CONTENTS
xii
(In re Chrysler LLC, Part 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
[B] Successor Liability and the Problem of Future Claims . . . . . . . . . . . . 495
[C] Future Claims Not in Existence at the Time of Sale or Plan
Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 497
[D] The Problem of Providing Adequate Notice to Future Claimants . . . . . 500
[E] Using a Future Claims Representative to Satisfy Due Process . . . . . . . 502
In re Roman Catholic Archbishop of Portland . . . . . . . . . . . . . . . . 502
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508
§ 6.03 THE USE OF FINDINGS OF FACT AND CONCLUSIONS OF LAW IN
THE SALE PROCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509
In re Automation Solutions International, LLC . . . . . . . . . . . . . . . . . 510
Chapter 7 EXECUTORY CONTRACTS . . . . . . . . . . . . . . . . . . . . . 523
§ 7.01 INTRODUCTION: WHAT IS AN EXECUTORY CONTRACT? . . . . . 523
[A] The “Countryman” Definition of Executory Contract . . . . . . . . . . . . . 524
In re Rovine Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527
[B] Other Approaches to Determining Whether a Contract Is Executory . . 532
§ 7.02 EFFECT OF ASSUMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534
§ 7.03 EFFECT OF REJECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535
[A] The General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535
[B] The Effect of Rejection on Specific Performance . . . . . . . . . . . . . . . . 535
[C] Damage Caps for Long Term Contracts . . . . . . . . . . . . . . . . . . . . . . 537
In re Klein Sleep Products, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 538
In re Energy Conversion Devices, Inc. . . . . . . . . . . . . . . . . . . . . . 547
[D] The Special Rule for Rejection of Real Property Leases by a
Debtor-Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554
[E] The Special Rule for Rejection of Contracts for the Sale of Real
Property or Timeshare Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555
[F] The Special Rule for Rejection of Intellectual Property Licenses . . . . . 556
Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC . 556
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559
Bankruptcy: The Next Twenty Years, Report of the National Bankruptcy
Review Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560
§ 7.04 TIME FOR ASSUMPTION AND REJECTION . . . . . . . . . . . . . . . . . 561
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 561
§ 7.05 WHEN SHOULD A COURT APPROVE ASSUMPTION? THE GENERAL
RULE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564
Orion Pictures Corp. v. Showtime Networks, Inc.
(In re Orion Pictures Corp.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564
TABLE OF CONTENTS
xiii
§ 7.06 LIMITATIONS ON THE POWER TO ASSUME EXECUTORY
CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567
[A] Contracts that Have Terminated . . . . . . . . . . . . . . . . . . . . . . . . . . . 567
[B] Contracts in Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 568
[C] Contracts to Make a Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569
[D] Nonresidential Real Estate Leases that Have Terminated . . . . . . . . . . 570
[E] Bankruptcy Termination Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . 570
[F] Contracts that Are Non-Assignable Under Nonbankruptcy Law . . . . . 571
In re Pioneer Ford Sales, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 571
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575
[G] Adequate Assurance of Future Performance . . . . . . . . . . . . . . . . . . . 579
In re U.L. Radio Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 579
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584
§ 7.07 WHEN SHOULD A COURT AUTHORIZE REJECTION? . . . . . . . . . 585
Problem 7.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585
In re Chi Feng Huang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590
§ 7.08 REJECTION OF COLLECTIVE BARGAINING AGREEMENTS . . . . 591
Problem 7.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591
In re Pinnacle Airlines Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621
Chapter 8 CLAIMS AGAINST THE DEBTOR . . . . . . . . . . . . . . . . 623
§ 8.01 INTRODUCTION TO THE PROOF AND ALLOWANCE OF
CLAIMS IN CHAPTER 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623
§ 8.02 ESTIMATION OF CONTINGENT AND UNLIQUIDATED CLAIMS
AND TEMPORARY ALLOWANCE OF DISPUTED CLAIMS . . . . . . 626
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629
In re Harmony Holdings, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 630
§ 8.03 OTHER GROUNDS FOR THE DISALLOWANCE OF CLAIMS . . . . 634
§ 8.04 SECURED CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 635
[A] Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 635
[B] Determining the Allowed Amount of a Secured Claim . . . . . . . . . . . 636
Problem 8.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636
Associates Commercial Corp. v. Rash . . . . . . . . . . . . . . . . . . . . . 637
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640
[C] Interest on Secured Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641
Problem 8.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641
Key Bank v. Milham . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645
[D] Attorneys’ Fees on Unsecured and Unsecured Deficiency Claims . . . 650
TABLE OF CONTENTS
xiv
§ 8.05 ADMINISTRATIVE EXPENSE CLAIMS . . . . . . . . . . . . . . . . . . . . . 651
§ 8.06 REPRISE: WHAT IS A CLAIM AND WHEN DOES A CLAIM
ARISE? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655
[A] Special Problems in Products Liability Cases . . . . . . . . . . . . . . . . . . 655
Kane v. Johns-Manville Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 656
Epstein v. Offıcial Committee of Unsecured Creditors of Piper
Aircraft Corp. (In re Piper Aircraft Corp.) . . . . . . . . . . . . . . . . . 663
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666
[B] Reprise: Special Problems in Environmental Cases . . . . . . . . . . . . . . 668
Ohio v. Kovacs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672
Torwico Electronics, Inc. v. State of New Jersey Department of Envi-
ronmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673
[C] Special Problems in Cases Involving Equitable Remedies . . . . . . . . . 678
§ 8.07 SUBORDINATION OF CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . 679
[A] Equitable Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 679
Problem 8.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 679
In the Matter of Lifschultz Fast Freight . . . . . . . . . . . . . . . . . . . . 680
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 694
[B] Subordination of Shareholder Claims for Rescission or Damages . . . 699
Problem 8.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 699
H.R. Rep. No. 95-595 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700
§ 8.08 SUBSTANTIVE CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . . . . 702
Problem 8.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702
In re Augie/Restivo Baking Company, Ltd. . . . . . . . . . . . . . . . . . . . 703
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 708
Chapter 9 THE CHAPTER 11 PLAN . . . . . . . . . . . . . . . . . . . . . . . 717
§ 9.01 WHAT IS A PLAN? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717
§ 9.02 A BRIEF OVERVIEW OF THE PLAN ACCEPTANCE &
CONFIRMATION PROCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 722
§ 9.03 WHO MAY PROPOSE A REORGANIZATION PLAN;
EXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724
Problem 9.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724
In re Express One International, Inc. . . . . . . . . . . . . . . . . . . . . . . . 728
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 731
Problem 9.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739
In re El Comandante Management Company, LLC . . . . . . . . . . . . . 740
§ 9.04 IMPAIRMENT OF CLAIMS AND INTERESTS . . . . . . . . . . . . . . . . 743
[A] Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 743
§ 1124. Impairment of claims or interests . . . . . . . . . . . . . . . . . . 744
TABLE OF CONTENTS
xv
[B] Leaving Rights Unaltered; Code § 1124(1) . . . . . . . . . . . . . . . . . . . . 745
[C] Undoing Acceleration and Curing Defaults; Code § 1124(2) . . . . . . . 747
Problem 9.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747
In re Madison Hotel Associates . . . . . . . . . . . . . . . . . . . . . . . . . . 748
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 753
[D] Payment in Cash on the Effective Date of the Plan; Former
§ 1124(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 756
In re New Valley Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 756
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760
§ 9.05 THE INTERSECTION OF IMPAIRMENT AND CLASSIFICATION: THE
ONE IMPAIRED ACCEPTING CLASS REQUIREMENT; WHAT CODE
§ 1111(B) DOES TO CLAIMS, AND WHY . . . . . . . . . . . . . . . . . . . . 760
§ 9.06 CLASSIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 765
Problem 9.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 765
Phoenix Mutual Life Insurance Company v. Greystone III
Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766
Note on Classification in Single Asset Real Estate Cases . . . . . . . . . 772
Teamsters National Freight Ind. Negotiating Comm. v. U.S. Truck Com-
pany (In re U.S. Truck Company) . . . . . . . . . . . . . . . . . . . . . . . . . . 773
In re Dow Corning Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 789
§ 9.07 IMPAIRMENT AND CLASSIFICATION REVISITED: ARTIFICIAL
IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 792
In re Windsor on the River Associates, Ltd. . . . . . . . . . . . . . . . . . . 792
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 797
§ 9.08 THE PLAN ACCEPTANCE PROCESS — CONSENSUAL
CONFIRMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 798
[A] Disclosure of Adequate Information . . . . . . . . . . . . . . . . . . . . . . . . 798
In re Metrocraft Publishing Services, Inc. . . . . . . . . . . . . . . . . . . 801
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805
[B] Solicitation of Acceptances and Rejections . . . . . . . . . . . . . . . . . . . . 813
Problem 9.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 813
Century Glove v. First American Bank of New York . . . . . . . . . . . 814
In re Clamp All Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 820
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 827
[C] Voting on the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 828
[1] Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 828
[2] Creditors Holding Multiple Claims . . . . . . . . . . . . . . . . . . . . . . . . 830
[3] The Requirement of Good Faith in Voting. . . . . . . . . . . . . . . . . . . 830
Problem 9.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830
In re Featherworks Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 831
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 834
TABLE OF CONTENTS
xvi
Figter Limited v. Teachers Insurance and Annuity Assn. of America
(In re Figter Limited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 838
§ 9.09 TRADING IN CLAIMS AGAINST THE DEBTOR . . . . . . . . . . . . . . 839
[A] Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 839
[B] Acquiring Claims to Take Control of the Debtor . . . . . . . . . . . . . . . 845
Dish Network Corp. v. DBSD North America Corp. (“Dish I”) . . 846
Dish Network Corp. v. DBSD North America, Inc. (“Dish II”) . . . 854
NOTE ON THE IMPACT OF CLAIMS TRADING ON
CHAPTER 11 CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 857
§ 9.10 CRAMDOWN: TREATMENT OF DISSENTING CLASSES OF CLAIMS
AND INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858
[A] Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858
[B] Treatment of Dissenting Classes of Secured Claims . . . . . . . . . . . . . 859
[1] Deferred Cash Payments — Rewriting the Loan; Code
§ 1129(b)(2)(A)(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859
Problem 9.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859
In re Hallum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 860
Note: Why Elect Code § 1111(B)(2) Treatment? . . . . . . . . . . . . 862
Till v. SCS Credit Corporation . . . . . . . . . . . . . . . . . . . . . . . . 864
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 870
Bank of Montreal v. Offıcial Committee of Unsecured Creditors
(In re American Homepatient, Inc.) . . . . . . . . . . . . . . . . . . . . . 871
Note on In re Mace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 876
[2] Sale of Collateral with Liens Attaching to the Proceeds; Providing the
Indubitable Equivalent; Code §§ 1129(b)(2)(A)(ii) and (iii) . . . . . . 877
Radlax Gateway Hotel, LLC v. Amalgamated Bank . . . . . . . . . . 879
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 884
[3] Dirt-for-Debt Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 884
Problem 9.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 885
[C] Cramdown: Treatment of Dissenting Classes of Unsecured Claims and
Equity Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 890
[1] Historical Note: Absolute Priority Under the Former Bankruptcy
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 890
[2] The Absolute Priority Rule and Cramdown Under the Bankruptcy
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 897
Debates on Uniform Law on Bankruptcy . . . . . . . . . . . . . . . . . 898
Norwest Bank Worthington v. Ahlers . . . . . . . . . . . . . . . . . . . . 900
Problem 9.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 905
In re Landau Boat Co. (Landau I) . . . . . . . . . . . . . . . . . . . . . . 905
In re Landau Boat Co. (Landau II) . . . . . . . . . . . . . . . . . . . . . 908
Bank of America National Trust and Savings Association v. 203
TABLE OF CONTENTS
xvii
North Lasalle Street Partnership . . . . . . . . . . . . . . . . . . . . . . . 911
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 920
[3] Gifting Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 922
Dish Network Corp. v. DBSB North America, Inc. . . . . . . . . . . 922
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 931
[4] Unfair Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 931
Problem 9.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 934
§ 9.11 THE STANDARDS FOR CONFIRMING A PLAN . . . . . . . . . . . . . . 936
[A] Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 936
[B] Best Interests of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 937
In re Merrimack Valley Oil Co. . . . . . . . . . . . . . . . . . . . . . . . . . 938
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 940
[C] One Impaired Accepting Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . 941
[D] Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 942
[E] Compliance with Provisions of Title 11 . . . . . . . . . . . . . . . . . . . . . . 943
[F] Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 944
[G] Approval of Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 945
[H] Identity of Prospective Management and Insiders . . . . . . . . . . . . . . . 945
[I] Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 946
[J] Payment of Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . 946
[K] Payment of United States Trustee System Fees . . . . . . . . . . . . . . . . 947
[L] Payment of Certain Retiree Benefits . . . . . . . . . . . . . . . . . . . . . . . . 947
§ 9.12 PREPACKAGED CHAPTER 11 CASES . . . . . . . . . . . . . . . . . . . . . . 947
Chapter 10 THE EFFECT OF CONFIRMATION: POST CONFIRMA-
TION CONCERNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 953
§ 10.01 THE EFFECT OF PLAN CONFIRMATION . . . . . . . . . . . . . . . . . . . 953
[A] A Confirmed Plan Binds All Parties; Code § 1141(a) . . . . . . . . . . . . 953
Travelers Indemnity Co. v. Bailey . . . . . . . . . . . . . . . . . . . . . . . . 954
[B] A Confirmed Plan Vests Property in the Reorganized Debtor; Code
§ 1141(b), (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 960
In re Penrod . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 961
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 964
[C] A Confirmed Plan Discharges the Debtor; Code § 1141(d) . . . . . . . . 965
§ 10.02 NOTICE TO CREDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 966
Problem 10.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 966
Reliable Electric Co., Inc. v. Olson Construction Company . . . . . . . 967
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 970
Berk v. Brooks Fashion Stores, Inc. (In re Brooks
Fashion Stores, Inc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 973
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 975
TABLE OF CONTENTS
xviii
Hexcel Corp. v. Stepan Company (In re Hexcel Corp.) . . . . . . . . . . 976
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 984
§ 10.03 THE EFFECT OF CONFIRMATION ON THE LIABILITY OF
NON-DEBTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 985
Problem 10.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 985
In re Master Mortgage Investment Fund, Inc. . . . . . . . . . . . . . . . . . 985
Deutsche Bank v. Metromedia Fiber Network, Inc. (In re Metromedia
Fiber Network, Inc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 992
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 997
§ 10.04 POST-CONFIRMATION APPEALS; MOOTNESS . . . . . . . . . . . . . . 1001
Insurance Subrogation Claimants v. U.S. Brass Corp. (In re U.S. Brass
Corp.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1001
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1007
§ 10.05 REVOCATION OF CONFIRMATION . . . . . . . . . . . . . . . . . . . . . . . 1008
Tenn-Fla Partners v. First Union National Bank of Florida . . . . . . 1008
Haskell v. Goldman, Sachs & Co. (In re Genesis Health Ventures, Inc.)
(Genesis I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1020
Haskell v. Goldman, Sachs & Co. (In re Genesis Health Ventures, Inc.)
(Genesis II) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1025
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1027
§ 10.06 ENFORCEMENT OF PLAN PROVISIONS; POST CONFIRMATION JU-
RISDICTION OF THE BANKRUPTCY COURT . . . . . . . . . . . . . . . 1028
Gray v. Polar Molecular Corporation (In re Polar
Molecular Corporation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1030
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038
§ 10.07 SERIAL FILINGS: THE CHAPTER 22 PROBLEM . . . . . . . . . . . . . 1043
In the Matter of Jartran, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1043
In re Deed and Note Traders, LLC . . . . . . . . . . . . . . . . . . . . . . . . 1050
Notes and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1058
Table of Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TC-1
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
TABLE OF CONTENTS
xix