Cramdown - Ch. 11 Bankruptcy - Explained
What is Cramdown in a Business Bankruptcy?
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What is cramdown of a reorganization plan?
According to Section 1129(b) of the Bankruptcy Code, a cramdown provision gives a bankruptcy court the right to disregard pleas and objections of a secured lender and approve a borrowers restructuring plan.
The plan of reorganization must be approved by at least one class of impaired creditor, excluding votes cast by corporate insiders.
If any class of impaired creditor has not accepted the plan, the court, on request of the proponent of the plan, shall confirm the plan if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class . . . [t]hat is impaired under, and has not accepted, the plan.
The plan is, in effect, forced upon impaired creditors who voted against plan approval.
In the event of a cramdown, the court will determine whether treatment of each class is fair and equitable.
In a cramdown, the following attributes of the plan must be true:
Secured creditors must retain a lien on collateral or proceeds and receive deferred cash payments equal to present value of the collateral or receive the indubitable equivalent of its claim.
Unsecured creditors must be paid in full or no holders of junior claims may receive any payment.
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How do you feel about the ability of the court to cram down a plan on impaired creditors? What factors should the court use to determine whether the plan is fair and equitable to the impaired creditors?
ABC Corp files for Chapter 11 bankruptcy. The DIP puts forward a plan of reorganization. Under the plan, several classes of creditors will not receive full payment of their claims. That is, these creditors are impaired. If any of the impaired creditors object to the plan, what options are available to the DIP to seek creditor approval of the plan?
- Bankruptcy Law (Intro)
- What is Bankruptcy?
- Insolvency - Definition
- What are the types of business bankruptcy?
- Chapter 9 Bankruptcy
- Chapter 12 Bankruptcy
- Chapter 15 Bankruptcy
- Who are the participants in the bankruptcy process?
- Key concepts behind the bankruptcy process?
- Absolute Priority Rule
- Pari Passu
- What rules govern the bankruptcy process?
- Bankruptcy Abuse Prevention and Consumer Protection Act
- American Bankruptcy Institute Definition
- What the authority of the bankruptcy court?
- What is the authority of the trustee (debtor in possession) in bankruptcy?
- Debtor in Possession
- What assets of the debtor are included in the bankruptcy estate?
- Bulk Sales Law
- What is the automatic stay in bankruptcy?
- What is a claim by creditors of the bankruptcy estate?
- What is voluntary and involuntary bankruptcy?
- What is the Chapter 7 bankruptcy process?
- What is the Chapter 11 bankruptcy process?
- How to File Bankruptcy for a Business
- Accept or reject contracts?
- Avoiding powers?
- Stay of Proceeding?
- Use of Business Assets?
- Post-Petition Financing?
- Bankruptcy Financing - Definition
- What is the appointment of a Trustee or Examiner in business bankruptcies?
- What is a Plan of Reorganization?
- Reorganization - Definition
- Subordinated Debt
- Preferred Debt
- What is Cramdown of a reorganization plan?
- To what extent does the bankruptcy process relieve a debtor's debts?