Vol 15 (2018) - Issue 2

Article preview

The US Supreme Court Puts an End to Non-Consensual PrioritySkipping Structured Dismissals

A long-standing requirement of U.S. bankruptcy law demands that, for the successful confirmation of a chapter 11 plan over the objection of an impaired class of creditors, the 'absolute priority' rule must be respected, which generally means that no class of claims or interests junior to the impaired class receives any distribution. But the question that was presented to the U.S. Supreme Court in the case of Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973 (2017), ('Jevic') touched on a slightly different issue. Do the courts have the power to order a distribution that violates this absolute priority rule, not in a plan, but, rather, in a chapter 11 dismissal? In an important holding, the Supreme Court, reversing the uniform decisions of the courts below, said no. According to the justices, a bankruptcy court could not authorise such 'structured dismissals' that violated the absolute priority rule. The decision, however, may have wide-ranging implications outside the context of structured dismissals. It remains unclear, though, precisely what the shape and effect of those implications will be.