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equity holder was not a current equity holder of the debtor so as to trigger the absolute priority rule. The court then turned to a clause in the plan that prevented the secured creditor from going after the guarantors of its loan. The court found the clause to be too broad because it affected causes of action not connected to the bankruptcy. In addition to denying confirmation of the debtor's plan, the court granted the secured creditor stay relief because the debtor failed to prove "a reasonable possibility of executing a successful reorganization," as the debtor's case had been pending for over a year without a proposed confirmable plan. Additionally, the court found the debtor had no equity in the property.
xvi. In re Bridgeport Redevelopment, Inc., 465 B.R. 1 (Bankr. D. Conn. 2012)
Issue: Whether the "fair and equitable" cramdown requirement of section 1129(b) had been satisfied such that the debtor's plan could be confirmed.
Holding: The court sustained the creditor's objection to confirmation, finding that the debtor's plan did not provide the creditor with the indubitable equivalent of its secured claim. The court first noted that "a majority of courts agree that 'abandonment [of the collateral usually followed by foreclosure], or other unqualified transfer of the collateral, to the secured creditor' satisfies the 'indubitable equivalent' standard." Because the secured creditor took no position on this issue, the court held "for the purposes of this opinion only, that a transfer of collateral to a 'secured creditor' can meet the 'indubitable equivalent' standard, but only if the transfer is 'unqualified.'" The court then stated that "Section 1129(b)(2)(A) speaks in terms of 'claims,' not 'debts' and is not ambiguous in any relevant sense.... on its face Section 1129(b)(2)(A) states what can be 'done' to an unconsenting class of secured claims in a chapter 11 'cramdown;' it does not permit the debtor to 'do' anything to the corresponding debt. That is left to operation of law pursuant to Section 1141. Accordingly, in the 'indubitable equivalent'/collateral transfer context a debtor cannot 'do' anything to the corresponding debt in a cramdown context other than (perhaps) to provide for a credit against the debt equal to the value of the surrendered collateral." The court then found that "Disputed Language proposes to convey the Property to the Secured Creditor provided further that such conveyance is "in full satisfaction and extinguishment of any debt" pursuant to the Mortgage (emphasis added). As explained above, that provision is inconsistent with Section 1129(b)(2)(A) which deals only with 'claims.' Accordingly, the 'full satisfaction and extinguishment' provision of the Plan Treatment imposes an impermissible 'qualification' on the proposed collateral transfer. That qualification prevents the Plan Treatment from meeting the 'indubitable equivalent' standard. Therefore, the 'fair and equitable' requirement of Section 1129 (b)(2) has not been met." The court thus denied confirmation without prejudice to the debtor's right to amend the plan consistent with the court's opinion.
©2014 William L. Norton III
