Applying principles enunciated by the United States Supreme Court in Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 117 S.Ct. 1879 (1997), the Bankruptcy Court also found that it was appropriate to apply a minority discount when gauging the fair market value of the Corporate Holdings. To hold otherwise would give the best interest of the creditors a “punitive effect” on the Debtor by requiring payment of more than the fair market value of the assets in order to retain them. Accordingly, the plan which proposed to pay $923,161 to general unsecured claims, opposed to the $653,845 liquidated value, satisfied the best interest test of§1129(a)(7)(A).
The Bankruptcy Administrator objected to confirmation of the Chapter 11 plan arguing that loan by the Debtor to one of his development companies was made without Court authorization and was indicative of a lack of good faith. The Court, while not condoning the unauthorized loans (and in fact rescinded an award of sanctions against the Bankruptcy Administrator as a punishment), held that the loans were not relevant to whether the plan had been proposed in good faith.
Normally, under the Absolute Priority Rule unsecured claims in a dissenting class must either be paid in full or holders of claims or interests in a junior class must not receive any distribution. The “new value” exception, however, allows confirmation over the objection of unsecured claims if there is a contribution of funds that is:
(3) money or money’s worth;
(4) necessary for a successful reorganization; and
(5) reasonably equivalent to the value or interest received.
See generally In re Grandfather Mtn. Limited P’ship, 207 B.R. 475, 491 (Bankr. M.D.N.C. 1996). The Bankruptcy Court followed the opinion in Maharaj v. Stubbs & Perdue, P.A. (In re Maharaj), 681 F.3d 558 (4th Cir. 2012) and explicitly held that, despite the changes to §1115 made by BAPCPA, that the absolute priority rule does continue to apply in individual cases. The distributions under the plan, including the infusion of $200,000 of funds from the Debtor’s family, were “substantial and reasonably equivalent to the interest received or retained.”
For a copy of the opinion, please see: