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The Not-So-Settled Absolute Priority Rule: The Continued Threat of Priority-Deviation Through Interim Distributions of Assets in Chapter 11 Bankruptcy

December 20, 2017

It has been said that creditors have better memories than debtors. That saying rings true yet again. In Chapter 11 bankruptcy, there is a norm that all senior creditors must be paid back in full before any junior interests are satisfied at all. This is known as the absolute priority rule. In 2017, the United States Supreme Court decided Czyzewski v. Jevic HoldingCorp. (Jevic). The Jevic Court overruled a Third Circuit case, which held that a structured dismissal could deviate from the absolute priority rule in order to meet a better and quicker result in the settlement context for certain creditors in Chapter 11 bankruptcy. The Supreme Court held, in relevant part, that structured dismissals that deviate from priority rules as part of a final distribution of assets may not be approved over the
objection of creditors.

Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest. 

Copyright © 2017 Stradley Ronon Stevens & Young, LLP. All rights reserved.

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