Bankruptcy courts do not have the legal power to ignore the claims priority scheme in distributing settlement proceeds in connection with a Ch. 11 dismissal, the Supreme Court held Wednesday.
The 6-2 ruling in the case of Casimir Czyzewski, et al. v. Jevic Holding Corp., et al., found that the Third Circuit and the United States Bankruptcy Court for the District of Delaware incorrectly affirmed a structured settlement that skipped the claims of dissenting midpriority unsecured creditors, who were truck drivers of the trucking company Jevic.
“A distribution scheme ordered in connection with the dismissal of a Chapter 11 case cannot, without the consent of the affected parties, deviate from the basic priority rules that apply under the primary mechanisms the Code establishes for final distributions of estate value in business bankruptcies,” the Court’s opinion, delivered by Justice Stephen Breyer, stated. “Put somewhat more directly, we would expect to see some affirmative indication of intent if Congress actually meant to make structured dismissals a backdoor means to achieve the exact kind of nonconsensual priority-violating final distributions that the Code prohibits in Chapter 7 liquidations and Chapter 11 plans,” the Court said.