Chapter 11 Cram Down Provision

A Chapter 11 bankruptcy filing must include a reorganization plan that typically classifies the claims against the debtor, describes how each class of creditor will be treated under the plan, and how the plan will be carried out.  The bankruptcy plan generally must be approved by a majority of the creditors and the bankruptcy court.

Creditors may find reasons to object to the proposed plan. Some common objections include:

• Claiming the debtor does not meet Chapter 11 requirements
• Disputing the valuation of collateral
• Demonstrating the plan is not feasible
• Demonstrating the plan was not in good faith

If one of more classes of creditors refuses to accept the proposed plan, the debtor may attempt to override their objections by requesting the court use the “cram down” provision of the bankruptcy code. If the bankruptcy court requires the creditors to comply with the proposed plan despite their objections, this action is referred to as a “cram down.”

How a Cram Down Works

In order for the court to confirm the rejected bankruptcy plan, the debtor must prove that it is fair, equitable and does not discriminate against a class of creditors. For example, if there are two or more creditors of the same class and one of those creditors receives a significantly lower recovery than the other creditors of the same class, that could be considered discriminatory.  A secured creditor must receive the entire value of the asset securing the claim or the entire value of the claim, whichever is smaller, in order for the plan to be considered fair.

Unsecured creditors voting by class must either accept the Chapter 11 plan or the owners of the debtor corporation can not retain an interest in the reorganized debtor under the plan unless they contribute 'new value' to the plan.  Finally, a plan cannot be confirmed if the plan does not pay each claim holder as much as he would have received under a Chapter 7 liquidation unless those who receive less accept the plan.

Consult with an Experienced Los Angeles Business Bankruptcy Attorney

Before a cram down is requested in your business bankruptcy case, obtain counsel from a qualified Los Angeles business bankruptcy lawyer.  A Chapter 11 bankruptcy attorney can argue your position to the bankruptcy court in an attempt to support the cram down and make sure your rights are protected.

Bankruptcy is complicated. You need an experienced bankruptcy attorney on your side to guide you through the process from start to finish.  Please contact our offices today to schedule a consultation.