||Honorable James E. Yacos
||Judiciary; United States Bankruptcy Court for the
District of New Hampshire
|The cramdown provisions with regard to secured claims
is unclear with respect to how interest rates should be determined to
apply to payment of the secured claim over the life of the plan. The
conflict in the courts and divergence in approaches should be
||Provide explicit direction in the Code in order to
||M.O. Sigal, Jr.
||Attorney; Simpson, Thacher & Bartlett
||Invited Participant - July Meeting
|In memo on New Value: the argument on New Value is
cogently stated. The countervailing policy considerations have not, in
my opinion, been given the same thorough treatment. No analysis is
offered on the following issues: wisdom of a system that would change
the common understanding of enterprise financing under which capital is
raised at varying costs comensurate with the absolute priority rule and
the impact of this on one of the great strengths of this country which
is its publis and private capital raising markets; the wisdom in our
economic system of perpetuating failed management without any evidence
that the social goals of bankruptcy would be achieved by the proposed
reorganization plan; the wisdom of a system that would raise the spectre
of creditor losses followed by old equity reaping huge post wipe-out
profits. There are probably other relevant issues also.
||If after analysis some form of new value exception to
the absolute priority rule makes policy sense, the particulars of the
draft proposal #1 are in my opinion overly broad and illusory. What
constitutes new value needs some definiteness to guide courts in
applying it to particular factual circumstances. While this would
necessarily need to await the antecedent judgment as to what policies
were sought to be achieved, and correlatively what policies were not to
be encompassed, at a minimum, it would seem that a factual finding would
be required that the proposed new value satisfied those policy goals.
Furthermore, the concept of exclusivity termination as a safeguard would
be illusory if not coupled with a procedure for concurrent consideration
by parties in interest of any reorganization plan proposed wihtin a
statutorily specified reasonable time after such exclusivity
||Dean C. Waldt
||Attorney; Davis, Reberkenny &
||Proposal to codify the new value exception to the
absolute priority rule is based on a false premises. Proposal fails to
achieve any balance by creating an inappropriate penalty against equity
holders seeking to maintain their interest in the debtor and also
represents poor economic policy in that it encourages liquidation rather
than reorganization and invites speculation and hostile acquisition
wihtin the context of a chapter 11 case. Automatic removal of
exclusivity will only fuel litigation and encourage speculation and
hostile takeover attempts wihtin the context of a chapter 11
||Urges Commission to seriously reconsider the proposed
changes to section 1121 of the code. Allow the courts the flexibility in
determining the form and substance of new value and maintaining
exclusivity for a debtor attempting to reorganize.
||Gary White, on behalf of the Natl. Assoc. of Credit
||Chair, Government Affairs Comm., Natl. Assoc. of
|Strongly supports the working group's proposal
regarding the Absolute Priority Rule. This proposal would afford a
creditor the opportunity to purchase equity in the debtor corporation
without regard to the debtor's decision to provide new value. In
addition, the purchase of such equity prevents the debtor from forcing
automatic cramdowns on creditors.
||Strongly supports the working group's proposal on the
Absolute Priority Rule.
||Marc S. Young
||Disputed Secured Creditor
||Cramdown provisions make a mockery of the requirement
that reorganization plans be rejected in cases where unsecured creditors
would not receive what they would have if the debtor had liquidated
under Chapter 7.
||Cramdown provisions should be eliminated unless "new
value" is offered to creditors.
||Frank R. Kennedy
||Professor, Michigan Law School; former Executive
Director, Commission on the Bankruptcy Laws of the United States
||Cover letter discussing various areas of
|Author provides a list of 30 "Topics for
Consideration by Commission on Bankruptcy Laws." The recommended topic
relating to the Absolute Priority Rule is: Codification of new value
exception to absolute priority doctrine and acceleration of
||M.O. Sigal, Jr.
|In the Working Group's proposal on absolute priority,
the countervailing policy considerations were not given thorough
treatment. Also, the new value exception language is overbroad and
||Chapter 11 Working Group should conduct a more
thorough exploration of the countervailing policy considerations of the
absolute priority proposal, and the new value provisions should be more
narrowly tailored to provide "definiteness" to guide courts in
particular fact circumstances.
||Robert M. Zinman, on behalf of the Bankruptcy
||American Bankruptcy Institute ("ABI")
||Numerous position papers, memoranda and research
|In single asset cases, new value has been used as a
basis for overcoming the absolute priority rule, "which turns everything
on its head."
||If new value is recognized, it should wither be made
inapplicable to single asset cases, or in the alternative, consideration
should be given to preserving the application of absolute priority in a
single asset case by limiting the interest obtained by the contributor
of new value to what that contribution bears to existing unpaid
||Dean C. Waldt
|Proposal to codify the new value exception to the
absolute priority rule creates an inappropriate penalty against equity
holders seeking to maintain their interest in the debtor. The proposal
also represents poor econimic policy in that it encourages liquidation
rather than reorganization and invites speculation and hostile
acquisition within the context of a chapter 11 reorganization case. The
automatic removal of exclusivity will feul lititgation and encourage
speculation and hostile takeover attempts.
||Opposes amendment to codify the new value exception
to the absolute priority rule.
Partner, Price Waterhouse, UK
|The debtor's time is being wasted negotiating a plan,
rather than seeking to maximise recovery for the creditors.
||Strengthen the rule of absolute priority.
||J. Christopher Kohn
||Director, Commercial Litigation Branch, U.S.
Department of Justice
|Author opposes the Commission's proposal to codify a
new value exception to chapter 11. "The new value proposal shifts the
locus of power in chapter 11 from the parties to the courts by
transferring to bankkruptcy judges decisions that belong in the hands of
creditors. The Bankruptcy Code already permits equity participation when
creditors consent. The new value exception is meaningful only to
override creditors' withheld consent. This is unfair to creditors,
sepecially since conrimstion orders are, as a practical matter, often
||"The better approach is to require creditor consent
for "new value" plans and to require that creditors of the same rank be
placed in the same class for voting purposes and paid consideration of
the same value. This approach preserves the absolute priority principle
while permitting new value plans that benefit the enterprise as a
||Deputy General Manager, The Long-Term Credit Bank Of
Japan, Limited (LTCB)
|"I am writing concerning the 'new-value' exception to
the abolute priority rule being considered by the National Bankruptcy
Review Commission....I am concerned with the impact the 'new-value'
exception will have on borrowers' attitudes and strategies. As you know,
real estate is a highly cyclical business and we therfore often
accommodate our borrowers dudring a cycle's nadir...The proposed rules
provide borrowers with a mechanism to 'sell' at the peak without losing
control of the asset in the certainty that they can 'buy' at the trough
of the cycle at a favorable rate....Should this proposal become law, it
will undoubtedly discourage many banks...from lending in the real estate
||"We urge you to fully consider the ramifications of
the new value exception, and its probable impact on the real estate
||Dean S. Cooper and George Kielman
||Associate General Counsel and Assistant General
Counsel, respectively, of The Federal Home Loan Mortgage Corporation
|"Freddie Mac does not oppose in concept the
codification of the so-called new value 'exception' to the absolute
priority rule provided that the new value proposal contains all of the
standards for the new value exception set forth by the Supreme Court in
Case v. Los Angeles Lumber Products. The proposal as currently approved
by the Commission does not accomplish that result."
||"Freddie Mac requests that the Commission clarify the
new value proposal to require that: (1) the new contribution be
necessary, (2) the debtors may only receive an interest which is
reasonably equivalent to their contribution, and (3) the contribution
must be in money or the equivalent, as required by Los Angeles Lumber.
In particular, Freddie Mac believes that there must be some objective
legal standard to assess the sufficiency of the new value
||Steven L. Schwarcz
||Professor of Law, Duke University School of
||Article from 47 Duke Law Journal Issue #3 (Dec. 1997)
entitled "The Easy Case for the Priority of Secured Claims in
|Author submits article which agrues that unsecured
creditors themselves should wan a debtor to have access to full-priority
secured credit and therefore responds to recent scholarly arguments that
a protion of a debtor's collateral be set aside for unsecured
||Attorney, Vinson & Elkins L.L.P.
|Author feels that adopting the "new cash infusion
exception" to the absolute priority rule "would bring havoc to the very
cases which need no more confusion or subterfuge -- namely, single asset
real estate cases. Large corporations, publically or privately held,
don't need such an exception and shouldn't use it."
||"If you need a Mom & Pop business exception, make
very small corporations and partnerships eligible for Chapter 13 instead
of monkeying around with Chapter 11. Thanks"