Same Class, Different Recoveries — No Bar to Plan Confirmation

Equal treatment of claims in the same class within a plan of reorganization is an important creditor protection in Chapter 11. However, is it possible to provide certain benefits to some creditors within a single class and not others without running afoul of the Bankruptcy Code? In a recent ruling on an issue of first impression, the U.S. Court of Appeals for the Eighth Circuit certainly made clear it thought so in Ad Hoc Committee of Non-Consenting Creditors v. Peabody Energy, (In re Peabody Energy), No. 18-1302, 2019 U.S. App. LEXIS 23824 (8th Cir. Aug. 9, 2019). In Peabody, the Eighth Circuit held that a debtors’ Chapter 11 plan complied with Bankruptcy Code Section 1123(a)(4) (which mandates that a plan provide the same treatment to all members of a particular class), despite providing more favorable treatment to creditors that agreed to backstop a rights offering by paying the participating creditors significant premiums and allowing them to purchase preferred stock at a deep discount.