The following deal was cut among Jevic (which was no longer operating), the Unsecured Creditors Committee, and the secured creditors who were defendants in the fraudulent-transfer case: Jevic and the Committee would release the fraudulent-transfer claims in exchange for $3.7 million from the fraudulent-transfer defendants, who otherwise received all Jevic’s assets, and the bankruptcy case would then be dismissed. One of the secured creditors was also Jevic’s controlling shareholder, and it faced direct claims for the same employment-law violations that the employees had asserted against Jevic itself. The Official Committee of Unsecured Creditors obtained standing from the bankruptcy court and brought fraudulent-transfer claims on behalf of the bankruptcy estate against the holders of this secured debt these claims survived a motion to dismiss. In bankruptcy, $53 million of LBO-related secured debt remained on the company’s books. In the hierarchy of claims to be satisfied during the bankruptcy proceeding, the employees’ $8.3-million priority portion is junior to secured claims and bankruptcy-related professional fees, but senior to certain lower-priority tax claims and general unsecured claims.īefore bankruptcy, Jevic underwent a leveraged buy-out. Although outside bankruptcy the employees would merely be general unsecured creditors, in bankruptcy, whether in Chapter 11 or Chapter 7, their claim has priority to the extent of $8.3 million. The petitioners in this case, truck drivers who used to work for Jevic, have a $12.4-million employment-law claim against the company. Jevic is a trucking company that filed under Chapter 11. ![]() And unlike a straight dismissal, a structured dismissal does not simply return the parties to their prebankruptcy positions. Unlike conversion to Chapter 7, a structured dismissal does not lead to a statutorily regulated liquidation consistent with established bankruptcy priorities. Unlike a Chapter 11 plan, a structured dismissal does not require disclosure, voting by affected constituents, and bankruptcy-court findings that the plan meets substantive and procedural legal standards, including compliance with the code’s priority rules. In a structured dismissal, however, the bankruptcy court’s dismissal order alters the rights and liabilities of the parties in ways that differ from the three options outlined in the code. The code contemplates that dismissal will return the parties to their prebankruptcy positions, except to the extent the bankruptcy court orders otherwise. ![]() Under the code, there are three ways to end a Chapter 11 case: confirmation of a reorganization plan, conversion to a Chapter 7 liquidation, or dismissal. Impaired classes - those whose legal, equitable or contractual rights are altered by the plan - may prevent confirmation of a plan that does not respect the priority rules set out in Chapter 11. ![]() In a Chapter 11 bankruptcy, the bankruptcy court considers a reorganization plan that assigns the various claims and interests to classes and specifies the treatment each class will receive. In a Chapter 7 bankruptcy, the company’s assets are liquidated and distributed to creditors in accordance with statutory priorities. The bankruptcy code allows a company to file under either Chapter 7 or Chapter 11. A broad holding or rationale could hamstring bankruptcy-court discretion to allow interim distributions in a wide variety of areas, casting doubt on a range of existing practices. If the Supreme Court does reverse the appeals court’s decision upholding Jevic’s structured dismissal, though, it may well tread carefully and deliberately limit the scope of its ruling. Structured-dismissal practice is unlikely to emerge from the case unscathed. Jevic Holding Corp., set for argument on December 7, involves a challenge to the increasingly fashionable use of “structured dismissal” to resolve Chapter 11 bankruptcy cases.
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