Bankr. W.D.N.C.: In re Eagan- Absolute Priority Rule in Individual Chapter 11; Valuation of Minority Interests


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 The Court, while not condoning the unauthorized loans (and in fact rescinded an award of sanctions against the Bankruptcy Administrator as a punishment), held that the loans were not relevant to whether the plan had been proposed in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:
(1) new;
(2) substantial;
(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:

Eagan- Absolute Priority Rule in Individual Chapter 11; Valuation of Minority Interests.pdf


1. Bachelor of Arts degree in English Literature from Washington University, 1993. 2. Juris Doctor degree from George Washington University, 1996. Admissions to Practice of Law: North Carolina Bar, 1996. Federal District Courts for the Eastern and Middle Districts of North Carolina. Specialty Certification: North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy. Areas of Practice: Practice limited to consumer and business debtor bankruptcy law, 1998 to present. Memberships: National Association of Consumer Bankruptcy Attorneys (NACBA). North Carolina Academy of Trial Lawyers (NCATL). North Carolina Bar Association, Bankruptcy Section. Lectures prepared and presented: North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court - C.Y.A. Forms to Help 'Gird They Loins'; 2001. Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002. NACBA National Convention; Topic: Efficient Office Practices; 2003. NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004. Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004. Positions held: NACBA National Convention; Convention Chair; 2008. NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008. NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007. NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007. NACBA, Member of National Board of Directors, 2006 to present. NCATL, Chair of the Bankruptcy Section, 2003 to 2007. NACBA, Chair of the North Carolina Section, 2003 to 2007. NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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