The court can confirm the plan even if 1129(a)(8) is not satisfied if the plan does not discriminate unfairly AND is fair and equitable w/ respect to each impaired class that has not accepted the plan. If this exception applies, still comply with 1129(10) if a class – of claims is impaired under the plan, at least one of the class of claims that is impaired has to accept. Unfair discrimination [1129(b)(1)] Factual questions Generally, the class that has rejected the plan must receive treatment under the plan consistent with that being given to other classes who have comparable rights. Fair and Equitable [1129(b)(1)&(2)] Tests: Unsecured C either gets PAID IN FULL, OR Absolute Priority Rule: If there is a cramdown, and there are junior classes, if a junior class is not paid in full, then no class junior to the not paid in full class gets anything. (e.g. equity gets nothing) E.g. LEAPFROG D, senior C, junior C and equity – holders. Under the confirmed plan, Senior is going to get 90 cents on dollar, junior gets 25 cents, nothing for equity. Senior agrees to give 10 cents on dollar to equity holders outside of Ch. 11 plan in order to encourage them to stay w/ company. Courts split over whether this is ok b/c rearranging distribution among Cs. New Value Rule If a junior class puts new value – into the plan, can they get something under the plane even tho there is an unpaid class ahead of them? 203 North Lasalle to the extent that the – equity holders are the exclusive party with the right to obtain equity in the reorg entity, then that exclusivity itself is a property interest. They are getting the opp to participate on account of their status as equity holders. Equity holders claimed they were receiving distribution b/c of equity” but court didn’t buy “sweat it. Court seems to hint that if you have an auction of the option to acquire stock in reorg entity then the equity holders might be permitted to participate in that on par w/ other entities. In an appropriate case, you can have a plan that violates
The court can confirm the plan even if 1129(a)(8) is not satisfied if the plan does not discriminate unfairly AND is fair and equitable w/ respect to each impaired class that has not accepted the plan. If this exception applies, still comply with 1129(10) – if a class of claims is impaired under the plan, at least one of the class of claims that is impaired has to accept. Unfair discrimination [1129(b)(1)] Factual questions Generally, the class that has rejected the plan must receive treatment under the plan consistent with that being given to other classes who have comparable rights. Fair and Equitable [1129(b)(1)&(2)] Tests: Unsecured C either gets PAID IN FULL, OR Absolute Priority Rule: If there is a cramdown, and there are junior classes, if a junior class is not paid in full, then no class junior to the not paid in full class gets anything. (e.g. equity gets nothing) E.g. LEAPFROG – D, senior C, junior C and equity holders. Under the confirmed plan, Senior is going to get 90 cents on dollar, junior gets 25 cents, nothing for equity. Senior agrees to give 10 cents on dollar to equity holders outside of Ch. 11 plan in order to encourage them to stay w/ company. Courts split over whether this is ok b/c rearranging distribution among Cs. New Value Rule – If a junior class puts new value into the plan, can they get something under the plane even tho there is an unpaid class ahead of them? 203 North Lasalle – to the extent that the equity holders are the exclusive party with the right to obtain equity in the reorg entity, then that exclusivity itself is a property interest. They are getting the opp to participate on account of their status as equity holders. Equity holders claimed they were receiving distribution b/c of “sweat equity” but court didn’t buy it. Court seems to hint that if you have an auction of the option to acquire stock in reorg entity then the equity holders might be permitted to participate in that on par w/ other entities. In an appropriate case, you can have a plan that violates