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New Value May Not Be Granted to Prebankruptcy Equity Holder Over Objection of Impaired Creditors
Description Supreme Court reversed lower courts approval of a judicial cramdown, where a Chapter 11 reorganization was approved over objection of the primary creditor of the bankrupt, where the reorganization would grant new value to the equity holders of the same organization.
Topic Bankruptcy
Key Words Creditors' Rights; Priority; Cramdown
C A S E   S U M M A R Y
Facts A partnership that owned a building that was mortgaged. The bank that made the mortgage was the sole creditor when the debtor filed for relief under Chapter 11. The debtor proposed a reorganization plan under which the partners would contribute new capital and continue operation. The bank objected, but the court imposed a cramdown, imposing the plan on the dissenting debtor. The bank appealed the plan.
Decision Reversed. A debtor's prebankruptcy equity holders may not, over the objection of a senior class of impaired creditors, contribute new capital and receive ownership interests in the reorganized entity, when that opportunity is given exclusively to the old equity holders under a plan adopted without consideration of alternatives. The old equity holders are disqualified from participating in such a "new value" transaction, which here bars a junior interest holder's receipt of any property on account of his prior interest.
Citation Bank of America National Trust and Savings Assn. v. 203 LaSalle St. Partnership, 119 S.Ct. 1411 (1999).

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