The Delaware Bankruptcy Court Confirms That Lenders in Multiple-Level Financing Structures Are Entitled to the Protections of Corporate Separateness

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The Delaware Bankruptcy Court has confirmed that in multiple-debtor chapter 11 cases, the cramdown rules set forth in section 1129(a)(10) of the Bankruptcy Code must be applied on a per debtor basis as opposed to a per plan basis. See In re JER/Jameson Mezz Borrower II, LLC, No. 11-13338 (MFW), 2011 WL 6749058 (Bankr. D. Del. Dec. 22, 2011) ("Jameson") and In re Tribune Co., No. 08-13141 (KJC), 2011 WL 5142420 (Bankr. D. Del. Oct. 31, 2011) ("Tribune"). Specifically, chapter 11 debtors may not obtain non-consensual confirmation of a plan of reorganization without obtaining the vote of at least one accepting class of impaired creditors at each debtor.1 As a practical matter, based on these cases, if a debtor has only one class of creditors, confirmation cannot be imposed on that class without its consent or rendering that class unimpaired, and the vote of an impaired class of creditors of an affiliated debtor will be insufficient.

While these recent decisions may have a significant impact in traditional multiple-debtor cases, their import to chapter 11 cases involving multiple-level financing to special purpose entities ("SPEs") is paramount. In Jameson, the Delaware Bankruptcy Court applied the per debtor confirmation require-ment in the context of a dismissal of the bankrupt-cy case of an SPE in a multiple-debtor case because, among other things, the debtor could not demonstrate that it could confirm  achapter 11 plan over the objection of the lender to the SPE.

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