FisherBroyles bankruptcy partner Hollace Cohen’s important article was published in the February 2017 edition of the Norton Journal of Bankruptcy Law and Practice. Ms. Cohen’s article, entitled “Is the Absolute Priority Rule Alive and Well? Jevic Threatens the Rule and Other Core Bankruptcy Principles”, criticizes the controversial decision of the U.S. Court of Appeals for the Third Circuit captioned In re Jevic Holding Corp. (“Jevic”).
In Jevic, the Third Circuit held that a pre-plan settlement and structured dismissal of a Chapter 11 case may deviate from the absolute priority rule. Under that rule, priority claims must be paid in full before junior ranking claims receive any recovery, absent the consent of holders of priority claims. In her article, Ms. Cohen set forth several reasons why the Jevic decision should be reversed, not the least of which is that there is nothing in the Bankruptcy Code that authorizes a bankruptcy court to approve a settlement and structured dismissal that violates the absolute priority rule.
The U.S. Supreme Court subsequently reversed the Third Circuit’s Jevic decision on March 22, 2017 in one of the most important bankruptcy decisions handed down in years. The Supreme Court considered the language of the Bankruptcy Code and found nothing in the statute indicating Congress intended that a structured dismissal effecting a final disposition of the assets of the estate may deviate from the absolute priority rule. The Supreme Court left open the possibility that a bankruptcy court might approve a settlement that provides for an interim distribution which includes a minor deviation from the absolute priority rule so long as there is a benefit to the estate. The Supreme Court also noted that its ruling would not affect priority-violating distributions that have significant Bankruptcy Code-related objectives such as permitting the debtors to reorganize and restructure their debts or maximize the value of the estate.
Although the Supreme Court’s decision in Jevic did not address the issue, Ms. Cohen’s article notes that other cases have permitted class-skipping where the payments received by unsecured creditors were not proceeds of property of the estate. Her article also points out that the flexible approach adopted by the Third Circuit in Jevic was applied in a solvent debtor case to allow a deviation from another core bankruptcy provision, the equal treatment rule. It is unclear what effect the Supreme Court’s decision may have with respect to these and other core bankruptcy principles.
New York Office Managing Partner Michael Cone noted that “FisherBroyles is proud to have Hollace in our ranks. Having worked on both the Enron and Lehman bankruptcies, she is a seasoned and highly regarded bankruptcy practitioner. It is not surprising that her most recent article predicted the outcome of the Supreme Court’s Jevic decision and its central reason for reversing the lower court.”
Ms. Cohen has published widely on the absolute priority rule and a variety of other bankruptcy topics. Her practice includes the representation of bondholders, indenture trustees, lenders, ad hoc and official creditor committees, acquirers of assets, trade creditors, lessors and lessees in bankruptcy cases and out-of-court restructurings. Ms. Cohen may be contacted at firstname.lastname@example.org or (917) 365-4871.
This article appears in the Norton Journal of Bankruptcy Law and Practice, Volume 26, No. 1 (February 2017) and is posted with permission. Copyright © 2017 Thomson Reuters/West. For more information about this publication please visit http://legalsolutions.thomsonreuters.com/