Sunday, August 07, 2016

Arizona District Court Applies Section 1129(a)(10) on a Per Plan Basis

One challenge in confirming a chapter 11 plan is finding an impaired accepting class without counting votes of insiders as required by 11 U.S.C. Sec. 1129(a)(10).   A new opinion from the District Court of Arizona makes that job easier in cases with jointly administered debtors.   In re Transwest Properties, Inc., 2016 U.S. Dist. LEXIS 102575 (D. Ariz. 6/22/16).  

The Transwest case involved five cases that were jointly administered but not substantively consolidated.    The organizational structure consisted of a holding company, two mezzanine companies and two operating companies.   The debtors proposed a plan in which the mezzanine debtors would be dissolved and the operating companies would be owned by an investor contributing new capital under the plan.    The principal secured creditor (Lender), which had acquired the mezzanine debt during the case, voted against the plan.   Lender argued that because it held the only claim in the mezzanine debtor cases that the plan could not be confirmed under section 1129(a)(10).   The bankruptcy court approved the plan.   Lender appealed.    On the first appeal, the district court dismissed the case as equitably moot.   The Ninth Circuit reversed and sent the case back to the district court.

On remand, the District Court noted a split in authority as to whether section 1129(a)(10) applied on a per plan or a per debtor basis.   The Lender relied on two cases from the Bankruptcy Court of Delaware to argue that there had to be an accepting vote in each case.  In re Tribune, 464 B.R. 126 (Bankr. D. Del. 2011), and In re JER/Jameson Mezz Borrower II, LLC, 461 B.R. 293 (Bankr. D. Del. 2011).    The Debtors relied on cases from the bankruptcy courts for the Southern District of New York and Middle District of Pennsylvania.  In re SPGA, Inc., 2001 WL 34750646 (Bankr. M.D. Pa. 2001), In re Enron Corp., 2004 Bankr. LEXIS 2549 (Bankr. S.D.N.Y. 2004), and In re Charter Communications, 419 B.R. 221, 266 (Bankr. S.D.N.Y. 2009).   Thus, a district court in Arizona was called upon to resolve a split between East Coast bankruptcy courts.

Rather than relying on the rationales advanced by the competing bankruptcy courts, the District Court applied a plain meaning analysis.   
Here, the Court finds that § 1129(a)(10) applies on a per-plan basis. First, unlike the Tribune court, this Court finds the plain language of the statute to be dispositive. The statute states that "[i]f a class of claims is impaired under the plan, at least one class of claims that is impaired under the plan has accepted the plan" then the court shall confirm the plan if additional requirements are met. 11 U.S.C. § 1129(a)(10) (emphasis added). Thus, once an impaired class has accepted the plan, § 1129(a)(10) is satisfied as to all debtors because all debtors are being reorganized under a joint plan of reorganization.
In re Transwest Properties, Inc., at *15.  

The District Court opinion takes a perfectly defensible position.    Section 1129(a)(10) is a technical requirement.   Therefore, technical compliance should be sufficient.

1 comment:

thedevilcorp said...

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