In the hotly-awaited decision Czyzewski v. Jevic Holding Corp., No. 15-649, 2017 WL 1066259 (S. Ct. Mar. 22, 2017), the U.S. Supreme Court held that “structured dismissals” of bankruptcy cases cannot distribute estate assets to certain creditors in derogation of the Bankruptcy Code’s priority rules. This decision disrupts an existing practice in Chapter 11 cases with unconfirmable bankruptcy plans where parties negotiated settlements inconsistent with the code’s priority scheme.

What Happened?

Jevic Transportation Corp. filed for Chapter 11 two years after being acquired by Sun Capital through a leveraged buyout. During the bankruptcy, two lawsuits were filed. First, former employees sued Jevic for violating federal and state WARN Act. The Bankruptcy Court granted a $12.4 million judgment, finding $8.3 million qualified for priority status under Section 507(a)(4) as unpaid employee wages and/or benefits. Second, the unsecured creditors’ committee sued Sun, alleging that the LBO was a fraudulent conveyance. The parties then negotiated a settlement providing for a “structured dismissal” of Jevic’s bankruptcy. Specifically, Jevic would dismiss its bankruptcy case and create a trust funded with cash that was subject to a lien in favor of Sun, which agreed to assign its interest in these funds only for the benefit of unsecured creditors. (Sun did not want to pay the employees, who were also suing Sun for WARN violations.)

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]