• Is a Bankruptcy Court’s Determination of Insider Status Reviewed Under the Rigorous De Novo Standard or the More Deferential Clear-Error Standard?
  • November 23, 2017 | Author: Henry C. Kevane
  • Law Firm: Pachulski Stang Ziehl & Jones LLP - San Francisco Office
  • The goal of every Chapter 11 case is the conirmation of a plan of reorganization. The plan will specify the treatment of creditors and the means for the debtor’s rehabilitation. A plan can be conirmed in one of two ways—either the plan meets the 16 statutory elements under Section 1129 of the Bankruptcy Code and each impaired class votes to accept the plan, or the plan is not accepted by all impaired classes but the debtor invokes the so-called cramdown option. Under this alternative, a plan may be conirmed over the rejection of a nonaccepting class so long as at least one impaired class of creditors has accepted the plan and the plan is “fair and equitable.” But that impaired class may not include the assent of an insider. The purpose of excluding insider votes in this context is to avoid collusion between the insider and the debtor to the detriment of disinterested creditors. Thus, whether a party is or is not an insider can sometimes be critical to the debtor’s ability to reorganize.