Central District Consumer Bankruptcy Attorney's Association

You said, "the property being crammed down should generate positive cash
flow"
Every property, not just the crammed down one, needs to generate positive
cash flow unless the unsecured classes vote in favor of the plan.
If they don't, that triggers the "or" in (B)(ii) which is the absolute
priority rule. At that point, you have to dump enough money into the plan
to get the judge to say equity should retain its share.
There is also no requirement that all disposable income be used in a plan.
In the case of an individual, if a creditor files an objection based on
disposable income, that may be a different result because of (a)(15). Keep
that in mind. And of course, all of this is subject to many caveats and
you're asking a very general question.
Practically speaking, it's possible to pay the unsecured class 30 cents on
the dollar, have them accept the plan, cram down all the secured creditors,
and still net $2,000 of disposable income that the Debtor can then
distribute as a bonus.
That's the problem with absolute priority not applying to individuals. Can
an individual use all their disposable income to pay for negative cash flow
properties, pay 0-1% to unsecured class, get objections based on not being
fair and equitable, and resolve those objections by saying it's fair and
equitable due to 1129(b)(2)(B)(ii) and that you get to keep your stuff
because your stuff is "included" under section 1115. Theoretically that's
possible with some judges but it definitely seems inequitable to me.
Sincerely,
Michael Avanesian
On Fri, Mar 8, 2013 at 9:20 AM, Alik Segal wrote:
> **
>
>
> Listmates,
>
>
> It is my understanding that in a Chapter 11 case with a cramdown, the
> property being crammed down should generate positive cash flow.
>
>
> As far as I understand, the rationale is that if the property generates a
> loss and requires an ongoing investment, money is being siphoned out of the
> estate without any benefit to the unsecured creditors who are taking a
> haircut. To put it differently, if the unsecured creditors are taking a
> loss, debtor should devote all disposable income to paying them and should
> not be allowed to invest in ways that will not benefit them.
>
>
> 1. In your experience, in a Chapter 11 case with a cramdown plan, how
> important is it for an investment property being crammed down to break
> even? What kind of loss might be considered acceptable as de minimis?
>
> 2. As with other things, the answer might depend on the judge. Do you
> have any experiences with specific judges in CD Cal. that reveal the
> judges position on this issue?
>
> --
> Alik Segal
> Alik.Segal@gmail.com
> 310-362-6157
> California Central District
>
>
>
You said, "the property being crammed down should generate positive cash flow"Every property, not just the crammed down one,needs to generate positive cash flow unless the unsecured classes vote in favor of the plan.
If they don't, that triggers the "or" in (B)(ii) which is the absolute priority rule. At that point, you have to dump enough money into the plan to get the judge to say equity should retain its share.
There is also no requirement that all disposable income be used in a plan. In the case of an individual, if a creditor files an objection based on disposable income, that may be a different result because of (a)(15). Keep that in mind. And of course, all of this is subject to many caveats and you're asking a very general question.
Practically speaking, it's possible to pay the unsecured class 30 cents on the dollar, have them accept the plan, cram down all the secured creditors, and still net $2,000 of disposable income that the Debtor can then distribute as a bonus.
That's the problem with absolute priority not applying to individuals. Can an individual use all their disposable income to pay for negative cash flow properties, pay 0-1% to unsecured class, get objections based on not being fair and equitable, and resolve those objections by saying it's fair and equitable due to 1129(b)(2)(B)(ii) and that you get to keep your stuff because your stuff is "included" under section 1115. Theoretically that's possible with some judges but it definitely seems inequitable to me.
Sincerely, Michael AvanesianOn Fri, Mar 8, 2013 at 9:20 AM, Alik Segal <listserv.inbox@gmail.com> wrote:

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