We at the Bankruptcy Cave are not very surprised by the ruling yesterday in Czyzewski v. Jevic Holding Corp. The Supreme Court in Jevic reviewed a Bankruptcy Court’s decision to approve a settlement (with a distribution of proceeds that contravened the Bankruptcy Code’s priority scheme) in conjunction with dismissing the bankruptcy case of the Chapter 11 debtor Jevic Holding Corp.
Yesterday, the Supreme Court issued is highly awaited ruling in Czyzewski et al. v. Jevic Holding Corp. et al. The Jevic case presented the question whether bankruptcy courts may approve non-consensual structured dismissals that vary the distribution scheme established by the Bankruptcy Code.
A potential threat to the Code’s priority scheme is the allowance of “structured dismissals,” which include a settlement as part of the dismissal of the chapter 11 case that would distribute estate assets in a manner that contravenes the Code’s priority rules.
This second installment of our series, “The Life Settlement Industry – Bankruptcy Issues”, will address two related issues:
(1) What type of interest (if any) does an investor-creditor have in a “life settlement” (i.e., a life insurance policy sold by the original owner to a third party for a value in excess of the policy’s cash surrender value, but less than its death benefit), and (2) How is the interest of an investor-creditor in a life settlement generally determined in a bankruptcy case?
On March 22, 2017, the United States Supreme Court held that bankruptcy courts cannot approve a “structured dismissal”—a dismissal with special conditions or that does something other than restoring the “prepetition financial status quo”—providing for distributions that deviate from the Bankruptcy Code’s priority scheme absent the consent of affected creditors. Czyzewski v.Jevic Holding Corp., No. 15-649, 580 U.S. ___ (2017), 2017 WL 1066259, at *3 (Mar. 22, 2017).
Securing support from principal creditors makes all the difference between a chapter 11 restructuring that saves a troubled shipping company and one that sinks it.
When a shipping company's financial distress is extreme, it must work fast to preserve value and stem losses. The use of chapter 11 by shipping companies to coerce principal creditors to support an unfavorable restructuring where ownership refuses to share risk is costly, value destructive and generally fruitless.
(6th Cir. Mar. 20, 2017)
The Sixth Circuit affirms the bankruptcy court’s order denying the debtor’s claim for an exemption under 11 U.S.C. § 522(d). The real property was fully encumbered by secured claims and thus the debtor had no equity in the property. The court applies its prior decision in In re Baldridge. The trustee also argued that the debtor’s appeal was moot under 11 U.S.C. § 363(m) and other authority but failed to meet the trustee’s burden on the issue. Opinion below.
Judge: Merritt
Attorney for Debtor: Gary Boren
On March 22, 2017, the Supreme Court, in Czyzewski et al., v. Jevic Holding Corp., et al., confirmed that the Bankruptcy Code does not permit “priority skipping” in Chapter 11 structured dismissals. In doing so, the Court held that, although the Code does not explicitly provide what, if any, priority rules apply to the distribution of estate assets in a Chapter 11 structured dismissal, “[a] distribution scheme in connection with the dismissal of a Chapter 11 case cannot, without the consent of the affected parties, deviate from the basic priority rules that apply under the . . .
In a widely anticipated ruling, the Supreme Court in Czyzewski v. Jevic Holding Corp. ruled that bankruptcy courts “may not approve structured dismissals that provide for distributions that do not follow ordinary priority rules without the consent of affected creditors.” In doing so, the Court rejected the Third Circuit’s ruling that the circumstances were an unusual “rare case,” justifying deviation from the ordinary priority rules.