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Cram Down Provision

Answers about the Cram Down Provision in Business Bankruptcy

Weintraub and Selth’s Los Angeles bankruptcy lawyers explain the Chapter 11 cram down provision and provide clear answers to your business bankruptcy questions. While the following provides an overview of the cram down provision and the business bankruptcy process, for more detailed answers and a candid conversation with a highly experienced Los Angeles business bankruptcy lawyer, call 310-442-0660.

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. If a court finds the reorganization plan acceptable but a creditor does not, the court may force the creditors to accept the terms. This is called a “cram down.” Having skilled attorneys negotiating with creditors may increase your chances of having the most attractive plan accepted by all interested parties before such an action is necessary. Because some creditors may not agree to your plan, it is best to anticipate their reasoning before you make a proposal. Our Los Angeles business bankruptcy lawyers can assist you during this process and throughout all the steps of bankruptcy. We are extremely experienced at anticipating a creditor’s reasoning for objecting to a bankruptcy plan.

Creditors may find a variety of reasons to object to the proposed plan which may 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 or 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.” Our Los Angeles business bankruptcy lawyers can be your guides and your advocates throughout the process.

How Does the Cram Down Provision in Business Bankruptcy Work?

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 instance, if there are two or more creditors of the same class and one of those creditors receives a significantly lower recovery than the others 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. Before a cram down is requested, obtain counsel from a qualified Los Angeles business bankruptcy lawyer. An attorney can argue your position to the court in an attempt to support the cram down and make sure your rights are protected.