Secured Creditor’s Carve-Out Does Not Violate Bankruptcy Code

Law360, New York (October 18, 2006, 12:00 AM EDT) -- The Bankruptcy Court for the District of Delaware recently held that a creditor’s agreement to cap its claim against the estate and provide additional funds to the estate for investigation of claims, in exchange for the estate’s release of claims against creditor, did not implicate the Bankruptcy Code’s “absolute priority” rule, even though the settlement would permit distribution to unsecured creditors before priority tax claims had been paid in full. See In re World Health Alternatives Inc., 344 B.R. 291 (Bankr. D.Del. 2006).

The court went...
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