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United States Supreme Court Narrows Use of Structured Dismissal in Chapter 11 Cases

March 23, 2017

In a 6-2 decision written by Justice Stephen Breyer, the U.S. Supreme Court ruled Wednesday, in Czyzewski et al v. Jevic Holding Corp. et al, that the use of so-called structured dismissals to end Chapter 11 cases must be narrowed, holding that a settlement that effectively wiped out employee claims against a trucking company but paid more junior creditors impermissibly sidestepped the U.S. Bankruptcy Code's creditor priority scheme. The Supreme Court’s decision reversed a Third Circuit ruling that upheld a 2012 settlement between Jevic Holding Corp. and creditors that didn't pay out mid-level priority employee claims but did pay lower priority general unsecured claims. The decision allows for the use of structured dismissals but only ones that follow the ordinary priority distribution rules unless there is creditor consent. The court held that Congress did not authorize a “rare case” exception that permits courts to disregard priority in structured dismissals for “sufficient reasons.” The Court was concerned that the exception could become the rule.   Opinion

 

 

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