In RE ICL Holding Co.: Roadmap For Avoiding The Absolute Priority Rule

Burr & Forman

In In re ICL Holding Co.,1 the United States Court of Appeals for the Third Circuit a_rmed the bankruptcy court’s approval under 11 U.S.C.A. § 363(b) of the sale of all of the debtors’ assets to the secured lender group and the allowance of payments to the unsecured creditors, notwithstanding nonpayment of the administrative tax claim arising out of the sale. The case may provide a roadmap for approval of § 363 bankruptcy sales without regard for the absolute priority rule and prohibitions against unfair discrimination. According to the Third Circuit in ICL, if the sale is structured so that funds used to pay junior creditors or selected administrative claimants are not “property of the estate,” then the priority rules of the Bankruptcy Code are not implicated. The ICL ruling leaves open whether the absolute priority rule and unfair discrimination prohibition are even applicable in the § 363 sale context. Additionally, the court’s mootness analysis should make all parties to a transaction or settlement concerned about the potential for mischief at the hands of courts that review bankruptcy transactions or settlements.

Originally published in the Norton Bankruptcy Law Adviser newsletter - July 2015.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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