Bankruptcy Lawyer Bryan W. Stone answers the question: “What is Chapter 11 Bankruptcy?”
The current Supreme Court, according to many critics, strongly leans in favor of big business, often at the expense of the little guy. Though the Court may have a well-established reputation as being friendly to corporations, a recent ruling proves that this isn’t always the case. In a recent ruling, Czyzewski et al., v. Jevic Holding Corp., the Court voted 6-2 in favor of individuals, rejecting claims by a New Jersey trucking company. To learn more about the bankruptcy case, keep reading.
The case began years ago when Jevic Holding filed for Chapter 11 following a failed leveraged buyout deal. The failure left the company owing more than $50 million to certain secured senior creditors and another $20 million to general unsecured creditors. At the same time, Jevic was sued by a group of its drivers who were ultimately awarded more than $8 million in damages, adding yet another group of creditors into the mix. What Jevic decided to do next is what led directly to the Supreme Court ruling.
Faced with competing groups of creditors, Jevic decided to negotiate a settlement with its senior secured creditors and its unsecured creditors, who had also filed suit seeking repayment. The deal would pay off these two groups, but would leave absolutely nothing left to pay the former truck drivers. The truckers were incensed by this plan because under the bankruptcy rules they had priority over the general unsecured creditors, meaning they should have received payment fist.
The bankruptcy court presiding over the case ultimately approved of the plan, settling the issue and dismissing the bankruptcy over the objections of the truckers. Though the court acknowledged that the structured dismissal involved a concept known as “priority skipping”, meaning it left out a higher prioritized group of creditors in favor of a group lower down the list, the court believed the settlement was ultimately the best deal possible. The court said that if they had not agreed to it, even less people would ultimately have walked away with money from Jevic.
The truckers appealed the ruling, but met with no success. A federal court affirmed the bankruptcy court’s decision and then the Third Circuit Court of Appeals affirmed that. Eventually the case made its way to the Supreme Court, which agreed to hear the matter. The issue before the court was whether Chapter 11 bankruptcy cases can be resolved using this priority skipping method, allowing the debtor to essentially avoid making payments to certain groups of creditors who would otherwise be entitled to receive money.
The Supreme Court, to the surprise of many, voted 6-2 to reverse the lower courts. The majority said that bankruptcy courts are not permitted to approve so called structured dismissals that don’t abide by normal priority rules. The only exception, according to the Supreme Court, are cases where the affected creditors (those being skipped) consent to being skipped. In this case, that would be the truckers, who must certainly did not agree to being left out. The Court said that Chapter 11 cases must follow the normal priority rules that apply under the Bankruptcy Code. The Court went further and clarified that this is true even in rare cases where more good might be done by ignoring the priority rules.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
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