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unfairly. "First, unfairness is presumptively present if the plan specifies materially different percentage recoveries for two classes having the same priority. If, for example, a plan gave an assenting class of trade creditors consideration, measured in terms of present value, equal to ninety percent of their claims, while giving a dissenting class of bank deficiency claims consideration worth only five percent, unfairness would presumptively exist. Second, a plan that allocates to dissenting classes plan consideration containing risks materially greater than those assumed under the plan by other similar assenting classes is also presumptively unfair. This second presumption exists even if the plan pays each class the same percentage recovery on its prepetition claims. This later type of unfairness could occur, for example, if a plan allocated common stock to a dissenting class of trade creditors, while giving short term secured notes to an assenting insider class of unsecured creditors." The court found that because the senior noteholders and the general unsecured creditors were each receiving an equal distribution under the plan, there was no unfair discrimination. The plan treated classes of equal priority equally. Nonetheless, the court went on to compare the senior noteholders' recovery under the plan with and without enforcing the subordination agreement. The court found that the senior noteholders' recovery decreased by only 4% without enforcing the subordination agreement. Accordingly, the court found no unfair discrimination. The court rejected the senior noteholders' argument that the plan discriminated unfairly because it allowed the general unsecured creditors to share in the benefit of the subordination agreement and thereby increase their recovery by 50%. The court found that the unfair discrimination inquiry under section 1129(b) focused only on how the plan affected the dissenting class. How the plan affecting other, non-dissenting classes, was irrelevant.
ii. In re BWP Transport, Inc., 462 B.R. 225 (Bankr. E.D. Mich. 2011)
Issue: Whether the debtor's plan satisfied the cramdown requirements of section 1129(b).
Holding: The bankruptcy court denied confirmation of the debtor's plan. The court first addressed Chase's argument that the debtor's plan discriminated unfairly against Chase's secured claim class because the plan proposed to pay that claim in full over a longer period (6 years) than the 5 year period in which other secured creditors were to be paid. The court applied the presumption-based standard laid out in Dow Corning, 244 B.R. 696 (Bankr. E.D. Mich. 1999) to determine whether the plan discriminated unfairly. "Under this standard, a rebuttable presumption of unfair discrimination would arise where: there is: (1) a dissenting class; (2) another class of the same priority; and (3) a difference in the plan's treatment of the two classes that results in either (a) a materially lower percentage recovery for the dissenting class (measured in terms of the net present value of all payments), or (b) regardless of percentage recovery, an allocation under the plan of materially greater risk to the dissenting class in connection with its proposed distribution." (emphasis in original). The court then noted that a plan proponent may "rebut the presumption of unfairness established by a significant recovery differential by showing that, outside of bankruptcy, the dissenting class would similarly receive less than the class receiving a greater recovery, or that the alleged preferred class had infused new value into the reorganization which offset its gain. The plan proponent could overcome the presumption of unfair treatment based on different risk allocation by showing that such
©2014 William L. Norton III
