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son of a director to buy claims of four creditors prior to voting, and the creditors were then reclassified as insider unsecured claims. The class then voted to approve the plan. The bankruptcy court confirmed the plan on the ground that the purchase and reclassification did not necessarily constitute bad faith, and the district court reversed. The Court of Appeals agreed with the district court on the ground that the debtor's orchestration of the purchase undermined critical confirmation requirements. And, the court distinguished an earlier case suggesting that purchasing a creditor's claim to obtain confirmation is not necessarily bad faith on the ground that the prior case involved a purchase by an existing creditor and not an insider. Also, the Court suggested that the purchase could violate section 1123(a)(4) which requires the same treatment of each claim in the class since the creditor class received full payment and the insider class didn't.
In re Harbin, 486 F.3d 510 (9th Cir. 2007) is an important case applying confirmation requirements to a situation which the debtor faces a large contingent claim. In the case, prior to confirmation of the plan, the debtor was engaged in litigation with the creditor, and the debtor ultimately received a favorable decision in the trial court. The plan made no provision for the creditor's claim and the creditor appeal. Before the appeal was decided, the state appellate court reversed the trial court's decision. According to the Court of Appeals, the bankruptcy court was required to consider the impact of the pending litigation on the feasibility of the plan, and it made no difference that the litigation was pending in the state court. And, the Court specifically referred to the power to estimate claims. The Court concluded that it was not necessary to delay confirmation but that the bankruptcy court could do so; a dissenting judge said that the effect of the decision is that confirmation must wait. In a somewhat similar situation, the creditor obtained a judgment for $38.5MM and the decision was reversed on appeal. The Bankruptcy Court ordered estimation of the claim on the ground that it could be done quickly, and that the case would be unduly delayed if administration of the case was delayed until the case was retried. And, the Court rejected the view that the plan could be confirmed and the claim liquidated later on the ground that an adverse judgment would require dismissal of the case and could prevent the debtor from obtain financing for the plan. In re Lionel L.L.C., 2007 WL 2261539 (Bk. S.D.N.Y. 2007). See also In re FV Steel & Wire Co., 372 B.R. 446 (Bk. E.D. Wis. 2007) (discussing estimation procedures for environmental claim).
Of interest are the opinions in the Adelphia case granting a stay on appeal of the confirmed plan contingent on the posting of a $1.3 billion bond, and the decision holding the appeal moot when the bond was not posted and the plan closed. In re Adelphia Communications Corp., 367 B.R. 749 (S.D.N.Y. 2007) (dismissing appeal; court is very critical of lawyers for appellant for misusing the stay process to gain time at fn. 33); id., 367 B.R. 84
(S.D.N.Y. 2007) (granting stay).
A good discussion of the interaction between confirmation requirements and settlements which appear to disregard the confirmation requirements is In re Winn-Dixie Stores, Inc., 356 B.R. 239 (Bk. M.D. Fla. 2006).
