HMRC has taken an increasingly active role in opposing restructuring plans with which it does not agree

Previously in this series, we explored whether restructuring plans present an alternative to formal insolvency, as well as the court's ability to exercise a cross-class cram down on opposing creditors.

The new law emphasises preventive restructuring, cross-border cooperation and equitable treatment of creditors

The European Union has recognised the need for harmonised insolvency laws across its member states and has taken a significant step forward with the introduction of the new EU Restructuring Directive ((EU) 2019/1023).

This directive aims to establish a common framework for insolvency proceedings, thereby enhancing cross-border cooperation and safeguarding the interests of all stakeholders involved.

Here’s a Bankruptcy Court opinion addressing a no-discharge claim under § 1141(d)(3) against an individual debtor who proposes a liquidating Subchapter V plan:

• RGW Construction, Inc. v. Lucido (In re Lucido), Adv. No. 21-4031, Northern California Bankruptcy Court (issued 9/13/2023, Doc. 113).

The Issue

What rate of interest should a debtor pay under a bankruptcy plan?

Even if the statutory conditions for cramming down the votes of dissenting creditors has been met, the court retains a discretion to consider other factors

Certain statutory conditions need to be met in order for the court to sanction a plan at least one class of creditors or members has not voted in favour of the plan by the requisite majority (being 75% in value of those present and voting) – referred to as the "cross-class cram down".

Question

Once a Subchapter V debtor is removed from possession under § 1185(a), what happens next?

The answer to this question seems to have evolved over the few years of Subchapter V’s existence:

• from a low-power position for debtor, early-on;
• to a high-power position for debtor, in a re-thought view; and
• then back to the low-power position for debtor, when problems of the re-thought view become evident.

I’ll try to explain.

Early Answer

Demonstrating that dissenting creditors are no worse off under a contested restructuring plan than in the relevant alternative is an essential requirement for the court to exercise its power to sanction the plan

The power of the court to sanction a restructuring plan where one or more classes of creditors or members has not voted in favour of the plan by the requisite majority (being 75% in value of those present and voting) is referred to as the "cross-class cram down".

The equitable mootness doctrine is before the U.S. Supreme Court on a Petition for writ of certiorari. The case is U.S. Bank National Association v. Windstream Holdings, Inc.[Fn. 1]

All who’ve seen an effort to abuse equitable mootness, from a creditor’s view, will appreciate the following information from U.S. Bank’s Petition and from a supporting Amicus Brief of law professors in U.S. Bank v. Windstream.

Here’s my take on third-party releases in a bankruptcy plan [not that anyone asked]:

“(b) Duties.—The [Subchapter V] trustee shall— . . . (7)facilitate the development of a consensual plan of reorganization.”

• From 11 U.S.C § 1183(b)(7)(emphasis added).

Facilitation is, by statute, a duty of every Subchapter V trustee—something a Subchapter V trustee must do. But the nature and boundaries of the facilitation role have always been fuzzy and, therefore, misunderstood.