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You Just Can't Give it Away

By Scott J. Friedman and Mark G. Douglas

Part One of a Two-Part Article

Companies in Chapter 11 may have capital structures consisting of multiple tiers of debt and equity that have competing priorities of payment vis-'-vis the company and its assets. The claims and interests of these competing stakeholders may be resolved in a Chapter 11 plan. To emerge from Chapter 11, the company must obtain approval of a plan that deals with all creditor claims and equity interests in accordance with the (sometimes complicated) rules contained in the Bankruptcy Code. In an effort to achieve an agreed-upon Chapter 11 plan, some creditors may give up (or gift) a portion of the recovery to which they would otherwise be entitled to another class of creditors or equity holders.

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