For the 12th consecutive year, David Kupetz...
In the recent case Czyzewski v. Jevic Holding Corp (Jevic), the Supreme Court ruled that bankruptcy courts lack the legal power to approve the structured dismissal of any Chapter 11 bankruptcy case “that provides for distributions that do not follow ordinary priority rules without the affected creditors’ consent.” In the Los Angeles Lawyer article “No Skipping Allowed,” David Kupetz analyzed the Jevic ruling and discussed the interaction between the priority rules of the Bankruptcy Code and dismissal of a Chapter 11 case, as well as the concern that expansion of the Jevic ruling may undermine future bankruptcy court discretion.
In its ruling, the Supreme Court emphasized that the Bankruptcy Code’s priority system is a “fundamental underpinning of business bankruptcy law.” It found that letting structured dismissals circumvent this system would nullify protections Congress has granted certain classes of creditors (such as employee wage claims), increase the risk of collusion and make settlements harder to achieve. The Supreme Court also rejected the bankruptcy court’s findings in the Jevic case that a priority-violating settlement was the only means for recovery by unsecured creditors, and that the terminated employees involved in the case were not harmed since they would receive nothing under any scenario.
Kupetz concluded the article by noting that though the Court did not explicitly reach beyond the interplay between priority rules and Chapter 11 dismissal, concerns persist that the scope of the Court’s ruling could be expanded, undermining necessary bankruptcy court discretion with regard to settlements in general, as well as certain types of structured dismissals.