(6th Cir. Jan. 27, 2016)

The Sixth Circuit affirms the district court’s finding that the Chapter 11 plan was proposed in bad faith. The plan proposed to pay small claims in full but over a 60-day period. This class of claims was technically impaired due to the delayed payment and it voted to accept the plan. The principle secured lender appealed. The Court finds that the plan was not proposed in good faith, as required by 11 U.S.C. § 1129(a)(3), because it was designed to circumvent  § 1129(a)(10)’s requirement for an accepting impaired class of claims. Opinion below.

In a recent case, the court held that a party to a settlement agreement (in this case a broker) cannot restrict the indemnity it is providing so that the indemnity is not payable if the insured goes into administration, or liquidation, or undergoes some other insolvency event. The decision is important on its own facts. But it does also raise questions about the legitimacy of other clauses in insurance contracts which depend on whether or not the insured or reinsured has entered into any kind of insolvency event.