7th Circuit Holding Impacts Single Asset Entity Chapter 11 Bankruptcy Cases
March 03, 2013
While sophisticated bankruptcy issues fall outside the scope of my blog, the February 14th opinion by the Seventh Circuit in the matter of Castleton Plaza, LP, No. 12-2639 (.pdf) warrants a mention.
Castleton dealt with the absolute-priority rule in 11 U.S.C. 1129(b)(2)(B)(ii), which provides that creditors "in bankruptcy are entitled to full payment before equity investors can receive anything." The technical issue was "whether an equity investor can evade the competitive process by arranging for the new value to be contributed by (and the new equity to go to) an 'insider,' as 11 U.S.C. 101(31) defines that term." The Court said no.
For more on the Castleton decision, including comments by attorneys involved in this important Southern District of Indiana case, please click on the following link to an article in The Indiana Lawyer: Bankrupcty ruling locks out insiders.