What is the court’s ‘cram down’ power in a Chapter 11 bankruptcy?

| Feb 22, 2018 | Business & Commercial Bankruptcy |

Chapter 11 bankruptcies in Rockland County and elsewhere have many components: secured creditors, unsecured creditors, unperformed contracts, partially performed contracts and assets that are difficult to value, just to name a few. Moreover, the Bankruptcy Code specifies a number of requirements that must be met before a reorganization plan can be approved by the court. What happens if, after all of the debts and assets are property valued, one secured creditor objects to its treatment under the proposed plan of reorganization? Can one objecting creditor tip over the entire bankruptcy process just to protect its claim?

The answer lies in what is colloquially referred to as the court’s “cram down” power. Section 1129(a) of the Bankruptcy Code specifies the criteria that must be satisfied before the court can approve a proposed plan of reorganization. Section 1129(b) gives the court the power to approve a proposed plan even if one creditor or a class of creditors asserts that its claims or interests will be impaired if the plan is confirmed. This is known as the “cram down” power.

In effect the cram down power gives the court the authority to confirm a proposed plan over the objection of one or more creditors as long as it finds that the proposed plan does not discriminate unfairly, and that the proposed plan is fair and equitable for every creditor whose claims are impaired by the plan and who has not accepted the plan. The statute spells out a number of detailed conditions concerning the treatment of secured creditors that must be satisfied if the court intends to exercise the cram down power.

There are many complications that can arise in business and commercial bankruptcy for every party involved, debtors and creditors alike. If your business is involved in a Chapter 11 bankruptcy, seek out a skilled and knowledgeable bankruptcy attorney to understand your rights and legal options.

Source: Legal Information Institute, “11 U.S. Code § 1129 – Confirmation of plan,” accessed on Feb. 19, 2018

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