In a pro-debtor opinion released on February 26, 2013, the Fifth Circuit Court of Appeals held that a debtor may “artificial impair” claims in a class to obtain an impaired and accepting class of claims as required by section 1129(a)(10) of the Bankruptcy Code. Western Real Estate Equities, L.L.C. v. Village at Camp Bowie I, L.P. (In re Village at Camp Bowie I, L.P.), No. 12-10271, 2013 WL 690497 (5th Cir. Feb. 26, 2013).

Statutory Background to the Artificial Impairment Issue -

As a condition of confirmation of a Chapter 11 plan, Bankruptcy Code section 1129(a)(10) requires that at least one class of claims that is impaired under the plan has accepted the plan. This is referred to as the “impaired and accepting class” requirement. A class of claims is considered impaired unless the plan leaves unaltered the legal, equitable, and contractual rights of the claim holder. 11 U.S.C. § 1124(1).

Please see full alert below for more information.