The following Restructuring & Insolvency guidance note Produced in partnership with Julie Lanz of Skadden Arps Slate Meagher & Flom LLP provides comprehensive and up to date legal information covering:
A chapter 11 debtor’s confirmed plan of reorganisation sets out the payments or distributions, if any, that will be made to creditors on account of their pre-petition claims and to equity holders. In order for a plan to be confirmable, payments and distributions must be made in accordance with the priorities set forth in the US Bankruptcy Code. In general, the US Bankruptcy Code establishes the following distribution priorities among various classes of claims and interests (listed in descending order of priority):
domestic support obligations
administrative expense claims
priority unsecured claims
non-priority unsecured claims
subordinated debt claims
equity interests and related rescission and damages claims
Only holders of claims that are allowed (ie recognised as valid) under the US Bankruptcy Code may participate in any distributions (11 U.S.C. §§ 502(a)).To be confirmable, a plan must provide that holders of secured claims will receive distributions equal to the value of their collateral and holders of administrative expense claims and priority claims be paid in full, unless the holders agree to a different treatment (11 U.S.C. §§ 1129(b)(2)(A), 1129(a)(9).
With respect to a class of creditors that has not accepted a chapter 11 plan, the ‘absolute priority rule’ set out in US Bankruptcy Code, s 1129(b) provides that any class of
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