Get Your Priorities Straight in Structured Dismissal

One option that a bankruptcy filer generally has in a plan bankruptcy (Chapter 11 or 13) is to make a deal with creditors and then dismiss the bankruptcy case. In a chapter 11 case, a “structured dismissal”may be entered where the Bankruptcy Court can approve certain distributions to creditors, grant certain third-party releases, enjoin certain conduct by creditors, and not necessarily vacate orders or unwind transactions undertaken during the case.

However, in the recent case of Czyzewski v. Jevic Holding Corp. the Supreme Court held that a distribution approved by a Bankruptcy Court as part of a structured dismissal violated the Bankruptcy Code. Specifically, the failure to follow ordinary priority rules (here rules that gave employees of the bankrupt company a first entitlement to payment) barred the bankruptcy court from signing the structured dismissal order.

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