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number which can be derived from the balance sheet, e.g., the amount of debt, debt discharged, assets in the estate, make little intellectual sense and are not grounded in the pre-Code application of Case v. Los Angeles Lumber. Such comparisons offer the opportunity to make normative comparisons, but otherwise seem like a fruitless search for a bright line. Better evidence that a contribution is substantial might be that it is the type of contribution required by a lender in order to obtain adequate loan-to-value coverage,437 or represents a "fair bet" that the assets will be worth more than the court found them to be.438 Even better would be abandonment of the separate requirement that the contribution be substantial in favor of careful application of the "necessary for a successful reorganization" requirement.
The cases do little to explain the "necessity" requirement.439 A tautological requirement is that without the contribution, the reorganization will fail.440 Some courts believe that using the new capital to pay claims demonstrates the funds were not necessary for the reorganization.441 The court's reasoning appears to limit use of new value to make
worth perhaps $590,000).
437 See In re Baxter & Baxter, Inc., 172 B.R. 198, 202 (Bankr. S.D.N.Y. 1994)
438 See In re Dean, 166 B.R. 949 (Bankr. D.N.M. 1994); In re SM 104, Ltd., 160 B.R. 202 (Bankr.
S.D. Fla. 1993).
439 For new value to be considered "necessary," it must be "necessary to the effective reorganization of the debtor." Sovereign Group 1985-27, Ltd., 142 B.R. at 708, quoting In re SLC Limited V, 137
B.R. 847 (Bankr. C.D. Utah 1992); In re Tallahassee Associates, L.P., 132 B.R. 712 (Bankr. W.D. Pa. 1991) (considering whether the new capital was sufficient to meet the proffered needs, capital repairs and cash flow shortfalls); The Penn Mutual Life Ins. Co. v. Woodscape Ltd. Partnership (In re Woodscape Ltd. Partnership), 134 B.R. 165 (Bankr. D. Md. 1991). See also In re Dowden, 143 B.R. 388, 392 (Bankr. W.D. La. 1989) (debtors did not explain necessity of new contribution, i.e., what it would be used for). In Case v. Los Angeles Lumber, Justice Douglas explained "Especially in [Kansas City Terminal Ry. Co. v. Central Union Trust Co., 271 U.S. 445 (1926)] did this Court stress the necessity, at times, of seeking new money 'essential to the success of the undertaking' from the old stockholders." 308 U.S. at 121, 60 S. Ct. at 10.
440 SM 104 Ltd., 160 B.R. at 226. See In re Greystone III Joint Venture, 102 B.R. 560, 576 (Bankr.
W.D. Tex. 1989) (where new cash is needed to pay claims, maintain asset and pay taxes, "The proposed capital infusion from the existing owners of the partnership is, in this court's view, 'essential to the success of the undertaking,' and so satisfies the 'necessity' predicate for the invocation of the capital infusion exception to the absolute priority rule."), aff'd, 127 B.R. 138 (W.D. Tex. 1990), rev'd on other grounds, 948 F.2d 134 (5th Cir. 1991), cert. denied, 113 S. Ct. 72, 121 L. Ed. 2d 37 (1992).
441 Sovereign Group 1985-27, Ltd., 142 B.R. at 708 ("The partial payment of a pre-existing debt to an objecting creditor, particularly in such an insignificant amount, will not facilitate the reorganization), citing Albrechts Ohio Inns, Inc., 152 B.R. at 502 (contribution was not "necessary" since it was not needed for operation of the business, but would be paid to creditors on account of their claims); In re Mortgage Invest. Co., 111 B.R. 604, 619 (Bankr. W.D. Tex. 1990) (where infusion of capital was to be
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