Cramdown of Equity in Chapter 11 Plan Requires Assessment of Equity's Value to Satisfy Fair and Equitable Standard

Summary

This article discusses a recent decision addressing whether the proposed treatment of equity is fair and equitable for purposes of cramdown confirmation. Chapter 11 plans that propose to extinguish existing equity interests because the estate does not have any value remaining after the payment of creditor claims are common. The Bankruptcy Code's absolute priority rule provides that a plan can be confirmed over the objections of more senior classes of creditors or interest holders that are not receiving full payment only if junior classes do not retain or receive anything under the plan on account of their claims or interests.