In In re DBSD North America Inc., Case No. 09-13061 (REG), the U.S. Bankruptcy Court for the Southern District of New York issued two related rulings that have important implications for the viability of hostile takeovers accomplished through purchases of a bankrupt company’s distressed debt. In DBSD North America, Bankruptcy Judge Robert E. Gerber held that a debt purchaser’s vote to reject the debtors’ Chapter 11 plan should be “designated” and, thus, not counted, under §1126(e) of the Bankruptcy Code because it was cast to gain control of the bankrupt company rather than to maximize the claim holder’s returns. Judge Gerber also held that the class of which the debt purchaser’s claim was the sole member should be deemed to have voted to accept the plan, thereby allowing the bankrupt company to avoid the “cram down” requirements of §1129(b) of the Bankruptcy Code.
Designation of Votes Under §1126(e). Section 1126(e) of the Bankruptcy Code allows the bankruptcy court to designate the votes of “any entity whose acceptance or rejection of such plan was not in good faith, or was not solicited or procured in good faith or in accordance with the provisions of [the Bankruptcy Code].” 11 USC §1126(e).
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