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Does the 'Best Interests' Test Protect the Tardy?

By Lori Sinanyan and Bennett L. Spiegel
July 02, 2015

While Chapter 11 is generally known as the reorganization chapter of the Bankruptcy Code, more recently, it has been used as a vehicle to manage the orderly liquidation of business entities through plans of liquidation. Whether such liquidations follow sales of a debtor's assets under ' 363 or monetization of assets of a debtor over time, the liquidating plan often provides for payments to the creditor body that generally follow the priority of distribution set forth in ' 726.

The “best interests of creditors test,” which must be met in order to confirm any Chapter 11 plan, states: “[w]ith respect to each impaired class of claims or interests ' (A) each holder of a claim or interest of such class ' (i) has accepted the plan; or (ii) will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under Chapter 7 of this title on such date.” 11 U.S.C. ' 1129(a)(7)(A).

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