Important Warnings Against “Gifting Plans” and Hostile Takeover Attempts in Chapter 11

By: Stephen B. Selbst and Paul A. Rubin
Herrick, Feinstein LLP, New York, New York, USA

The Second Circuit Court of Appeals' February 7, 2011 decision, which reversed the confirmation of a plan of reorganization for DBSD North America, Inc. ("DBSD") is likely to have an impact nationwide. The ruling of this influential court, whose decisions govern all New York, Connecticut and Vermont federal district and bankruptcy courts, generally rejects two practices: (1) Distribution of property under a plan of reorganization to equity holders without fully repaying non-consenting unsecured creditors, based on the purported justification that the distribution is a "gift" of property that a senior creditor is entitled to collect; and (2) Voting of claims purchased by a competitor after a debtor has filed a plan of reorganization in order to block plan confirmation so that the competitor can take over the debtor's business. Click here to read the entire article.