Gerrymandering

Improperly classifying claims under a Chapter 11 plan in order to manufacture an impaired, accepting class of creditors to meet the One-Impaired-Class-Must-Accept-The-Plan Rule. For example, a debtor may attempt to classify the lender’s unsecured deficiency claim separately from the claims of other unsecured creditors if the lender’s deficiency claim is large enough that a “no” vote from the lender will cause the unsecured class to reject the plan, leaving the debtor with no impaired accepting class and therefore unable to obtain confirmation of its plan. A debtor or other plan proponent may also try to separately classify claims of friendly unsecured creditors into a separate accepting class.

Bankruptcy Code §§ 1122, 1124, 1129. See also Classification of Claims, Cramdown, One-Impaired-Class-Must-Accept-The-Plan Rule.

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