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"In re DBSD North America, Inc.," Association of Insolvency & Restructuring Advisors …

February/March 2011

Madlyn Primoff and Marc Rosenberg published an article in the February/March 2011 edition of Association of Insolvency & Restructuring Advisors Journal. The article commented on the Second Circuit’s opinion in In re DBSD North America, Inc., 2011 WL 350480 (2d Cir. Feb. 7, 2011). In the decision, the Second Circuit reversed confirmation of a so-called “gift plan” in which a class of secured creditors proposed to “gift” a portion of their recovery to a class of equity holders over the objection of an intermediate dissenting class of unsecured creditors, in order to obtain the equity holders’ cooperation and support for the plan. The Court held that gifting violated the “absolute priority rule” of the Bankruptcy Code and rendered the plan unconfirmable. As the authors noted, although the Court did not address other alternatives to gift plans, such as the permissibility of gifts made outside of the plan, secured creditors will need to tread carefully in light of the disclosure, good faith and other legal issues potentially implicated by such an approach.

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