Beware Of Senior Creditors Bearing Gifts

Law360 (July 16, 2007, 12:00 AM EDT) -- In order to obtain confirmation of a consensual plan of reorganization in a bankruptcy case, senior creditors often agree to give up some of their distribution to junior classes in order to ensure the junior creditors’ cooperation on the plan.

These plans are sometimes called “gifting” plans. Similarly, settlement agreements often provide for senior creditors giving up some of their distribution (or their collateral, if the creditors’ claims are secured) to junior creditors.

In this regard, the Third Circuit has held that a “gifting” plan providing...
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