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9th Circuit overrules Entz-White

November 12, 2016

In re New Investments, Inc., 2016 Westlaw ---- (9th Cir.), the Ninth Circuit has held that when a plan of reorganization cures a Chapter 11 debtor's default, the creditor is entitled to collect interest at the default rate specified in the underlying promissory note, thus overruling In re Entz-White Lumber & Supply, Inc., 850 F.2d 1338 (9th Cir. 1988).  In a 2-1 decision, the court held that the creditor was entitled to interest at the default rate.  The majority noted that under 11 U.S.C. §1123(a)(5)(G), a plan of reorganization must provide adequate means for the plan's implementation, including the "curing or waving of any default."  In In re Entz-White Lumber & Supply, Inc., 850 F.2d 1338 (9th Cir. 1988), the Ninth Circuit had held that when a Chapter 11 debtor's plan of reorganization cures the debtor's default, that cure would essentially return the entire situation to "pre-default conditions," thus negating a creditor's contractual right to a default rate of interest. The majority concluded that the 1994 amendment to §1123, adding subsection (d), meant that Entz-White was no longer good law. 

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