Insights on Zachary vs. California Bank & Trust Case published in Journal of Bankruptcy Law

Insights June 1, 2016

Published in this issue of Pratt’s Journal of Bankruptcy Law, Pamela Egan discusses a significant decision by the U.S. Court of Appeals for the Ninth Circuit holding that the Bankruptcy Abuse Prevention and Consumer Protection Act did not abrogate the absolute priority rule for individual chapter 11 debtors, but merely carved an exception.

The Ninth Gets It Right—Absolute Priority Is the Code of the West Again

Bankruptcy is laced with colorful phrases and concepts: e.g., the indubitable equivalent; the hypothetical lien creditor; cram down; and the absolute priority rule. Recently, the U.S. Court of Appeals for the Ninth Circuit, in Zachary v. California Bank & Trust, 811 F.3d 1191 (9th Cir. 2016), ruled on one of bankruptcy’s colorful concepts, the absolute priority rule, and got it absolutely right.

The Absolute Priority Rule

Generally, the absolute priority rule means that if unsecured creditors are not paid in full, then equity cannot receive a penny. Similarly, unsecured creditors cannot receive a penny until secured creditors are paid in full. Unless the priority of creditors is adhered to absolutely, the plan is not “fair and equitable” and cannot be confirmed…

You can access the full article from Lexis here